Chapter 5

Question 1

Retailers

Answer 1

Merchandising companies that sell directly to consumers

Question 2

Wholesalers

Answer 2

Merchandising companies that sell directly

Question 3

Cost of goods sold

Answer 3

The total cost of merchandise sold during the period

Question 4

Gross profit =

Answer 4

Sales revenue -cost of goods sold

Question 5

Net income/loss =

Answer 5

Gross profit- operating expenses

Question 6

Cost of goods available for sale =

Answer 6

Beginning inventory + cost of goods purchased

Question 7

Perpetual inventory system

Answer 7

Companies maintain detailed records of the cost of each inventory purchase and sale
Cost of good sold recorded each time a sale occurs

Question 8

Periodic inventory system

Answer 8

Companies do not keep detailed inventory records of the goods on hand throughout the period
Cost of goods sold determined at the end of the period

Question 9

Determing the cost of goods sold in a periodic system

Answer 9

Determine the cost of goods on hand st the beginning of the accounting period
Add it to the cost of goods purchased
Subtract the cost of goods on hand determined by the physical inventory count at the end of the period

Question 10

Perpetual system records purchases of merchandise for sale in the ___________account

Answer 10

Inventory

Question 11

FOB Shipping point

Answer 11

Buyer pays the freight costs (debit inventory)

Question 12

FOB Destination

Answer 12

Seller pays freight costs (debit freight out or delivery expense)

Question 13

Purchase return

Answer 13

A return of goods from the buyer to the seller for cash or credit

Question 14

Purchase allowance

Answer 14

A deduction made to the selling price of merchandise granted by the seller do that the buyer will keep the merchandise

Question 15

Purchase discount

Answer 15

A cash discount claimed by the buyer for prompt payment of balance due

Question 16

Sales returns and allowance

Answer 16

Transactions in which the seller either accepted goods back from the purchaser (a return) or grants a reduction in the purchase price (an allowance) so that the buyer will keep the goods

Question 17

Contra revenue account

Answer 17

An account that is off set against a revenue account on the income statement

Question 18

gross profit =

Answer 18

Net sales - cost of goods sold

Question 19

Income from operations =

Answer 19

Gross profit - operating expenses

Question 20

Net sales =

Answer 20

Sales revenue -sales returns/allowances - sales discounts

Question 21

Comprehensive income

Answer 21

An income measure includes gains and losses that are excluded from the determination of net income

Question 22

Comprehensive income statement

Answer 22

A statement that presents items that are not included in the determination of net income referred to as other comprehensive income

Question 23

Periodic : determining cost of goods sold

Answer 23

Beginning inventory + cost of goods purchased = costs of goods available for sale - ending inventory = cost of goods sold

Question 24

Gross profit as a percent

Answer 24

Gross profit / net sales

Question 25

Profit margin

Answer 25

Measures the percent of each dollar of sales that results in the net income -measures the extent by which selling price covers all expenses

Question 26

Merchandising company

Answer 26

Only needs one inventory classification merchandising inventory

Question 27

Manufacturing company 3 qtypes of inventory :

Answer 27

Finished goods: items that are ready for sale Work in process: items that have begun the production lrocess but have yet to be completed Raw materials: basic goods that will be used in production but not yet placed into production

Question 28

Just in time inventory

Answer 28

Manufacture or purchase goods only when necessary

Question 29

Perpetual end of period inventory count:

Answer 29

Check accuracy of records | Determine amount of inventory lost due to wasted raw materials shoplifting or employee theft

Question 30

accrual basis accounting

Answer 30

1) transactions recorded in periods in which event occurs 2) revenues are recognized when services are performed, even if cash was not received 3) expenses are recognized when incurred, even if cash was not paid

Question 31

cash basis accounting

Answer 31

1) revenues are recognized only when cash is received 2) expenses are recognized only when cash is paid 3) not in accordance with GAAP

Question 32

adjusting entries

Answer 32

1) ensure that the revenue recognition and expense recognition principles are followed 2) required every time a co prepares financial statements 3) includes one income statement accoutn and one balance sheet account

Question 33

deferrals

Answer 33

1) prepaid expenses-paid in cash before they are used or consumed 2) unearned revenues-cash received before services are performed

Question 34

accruals

Answer 34

1) accrued revenues- revenues for services performed, but not yet received in cash or recorded 2) accrued expenses- expenses incurred but not yet paid in cash or recorded

Question 35

examples of prepaid expenses

Answer 35

insurance, supplies, ads, rent, depreciation

Question 36

before adjusting prepaid expenses

Answer 36

assets overstated, expenses understated

Question 37

adjusting entry for prepaid expenses

Answer 37

dr expenses | cr. assets

Question 38

examples of unearned revenues

Answer 38

rent, subscriptions, customer deposits for future service

Question 39

before adjusting unearned revenues

Answer 39

liabilities overstated, revenues understated

Question 40

adjusting entry for unearned revenues

Answer 40

dr. liabilites | cr. revenues

Question 41

examples of accrued revenues

Answer 41

interest, rent, services performed but uncollected

Question 42

before adjusting accrued revenues

Answer 42

assets understated, revenues understated

Question 43

adjusting entry for accrued revenues

Answer 43

dr. assets | cr. revenues

Question 44

examples of accrued expenses

Answer 44

interest, rent, salaries

Question 45

before adjusting accrued expenses

Answer 45

expenses understated, liabilities understated

Question 46

adjusting entry for accrued expenses

Answer 46

dr. expenses | cr. liabilities

Question 47

first closing entry

Answer 47

dr. revenues | cr. income summary

Question 48

second closing entry

Answer 48

dr. income summary | cr. expenses

Question 49

third closing entry

Answer 49

dr. income summary | cr. retained earnings

Question 50

fourth closing entry

Answer 50

dr. retained earnings | cr. dividends