Chapter 6

Question 1

A series of activities that a company undertakes to generate revenues and, ultimately, cash

Answer 1

Operating Cycle

Question 2

Merchandisers report Inventory as a __________, but service companies do not. Service companies often report Supplies, but they differ from inventory because supplies are goods acquired for internal use. Inventory consists of goods acquired for resale to customers.

Answer 2

(1) Current Asset

Question 3

Service companies earn revenue from ________ whereas merchandisers earn revenue from ______.

Answer 3

(1) Services

(2) Sales

Question 4

Merchandisers report an expense called _____________, which represents the total cost of all goods sold to customers during the period. Service companies do not incur this expense because they do not sell goods.

Answer 4

(1) Cost of Goods Sold

Question 5

Three accounts important to a merchandiser:

Answer 5

(1) Inventory
(2) Sales Revenue
(3) Cost of Goods Sold

Question 6

Reports the merchandiser’s total cost of acquiring goods that it has not yet sold.

Answer 6

Inventory

Question 7

The total selling price of all goods that the merchandiser did sell to customers during the period.

Answer 7

Sales Revenue

Question 8

Cost of all goods that the merchandiser did sell to customers during the period.

Answer 8

Costs of Goods Sold

Question 9

Sales Revenue - Cost of Goods Sold =

Answer 9

Gross Profit

Question 10

Cost of Goods Available =

Answer 10

Beginning Inventory + Purchases

Question 11

Goods available for sale sold during the period reported on income statement.

Answer 11

Cost of Goods Sold

Question 12

Periodic Inventory System Equation:

Answer 12

Beginning Inventory + Purchases - Ending Inventory = Cost of Goods Sold

Question 13

Perpetual Inventory System

Answer 13

Beginning Inventory + Purchase - Cost of Goods Sold = Ending Inventory

Question 14

Updates the inventory records for merchandise purchases, sales, and returns only at the end of the accounting period.

Answer 14

Periodic Inventory System

Question 15

True or False: To determine how much inventory is on hand and how much inventory has been sold in a periodic inventory system, they require that inventory be physically counted by the employees at the end of the period.

Answer 15

True

Question 16

The inventory records are updated every time inventory is bought, sold, or returned. Usually combined with bar codes and optical scanners.

Answer 16

Perpetual Inventory System

Question 17

Can’t estimate shirnkage

Answer 17

Periodic Inventory System

Question 18

Can estimate shrinkage

Answer 18

Perpetual Inventory System

Question 19

Politically correct term for loss of inventory from theft, fraud, and error.

Answer 19

Shrinkage

Question 20

Record all inventory related transactions in the __________.

Answer 20

Inventory Account

Question 21

Journal entry when business purchases on account:

Answer 21

Inventory (Debit) 
     Accounts Payable (Credit)

Question 22

Journal entry when business purchases with cash:

Answer 22

Inventory (Debit)

Cash (Credit)

Question 23

Journal entry when business receives a return:

Answer 23

Accounts Payable (Debit)
      Inventory (Credit)

Question 24

Purchase Discounts: 2/30, n/60

Answer 24

2 - Discount percentage offered
30 - Number of days in discount period
n - Net Purchase
60 - Maximum Credit Period

Question 25

Merchandisers record revenue when they ____________ by transferring control of goods to customer, either for cash or on credit.

Answer 25

Fulfill their performance obligations

Question 26

The sale is recorded when the goods leave the seller's shipping department

Answer 26

FOB Shipping Point

Question 27

The sale is recorded when the goods reach their destination (the customer).

Answer 27

FOB Destination

Question 28

Journal entries for recording inventory sales:

Answer 28

(1) Cash (Debit) Sales Revenue (Credit) (2) Cost of Goods Sold (Debit) Inventory (Credit)

Question 29

When goods sold to a customer arrive in damaged condition or are otherwise unsatisfactory, the customer can:

Answer 29

(1) Return for full refund | (2) Keep them and ask for a reduction in the selling price, called an allowance

Question 30

5 Steps in Revenue Recognition Principle:

Answer 30

(1) Identify the contract (2) Identify the seller's performance obligations (3) Determine the transaction price (4) Allocate the transaction price to the performance obligations. (5) Recognize revenue when each performance obligation is satisfied.

Question 31

Journal Entry for Sales of Bundled Items:

Answer 31

*include deferred revenue

Question 32

Separates the revenues and expenses that relate to core operations from all the other (peripheral) items that affect net income.

Answer 32

Multistep Income Statement

Question 33

Net Sales - Cost of Goods Sold =

Answer 33

Gross Profit

Question 34

True or False: Gross Profit is a subtotal not an account.

Answer 34

True

Question 35

Gross Profit % =

Answer 35

100x [ (Gross Profit)/ (Net Sales) ]