Chapter 7 part 1

Question 1

The chart of accounts for a merchandising entity differs from that of a service entity.

Answer 1

TRUE

Question 2

The difference between revenues from sales and cost of sales is operating income

Answer 2

FALSE

Question 3

For cash sales, the operating cycle is from cash to inventory to accounts receivable and back to cash.

Answer 3

FALSE

Question 4

The bill of lading is a document prepared by the seller detailing the terms of delivery.

Answer 4

FALSE

Question 5

A validated deposit slip indicates that cash and checks were actually deposited

Answer 5

TRUE

Question 6

Discounts offered to the buyer to encourage early payment are trade discounts.

Answer 6

FALSE

Question 7

Cash discounts are called purchases discounts from the buyer’s viewpoint

Answer 7

TRUE

Question 8

The sales discounts account is a contra-income account and will have a debit balance

Answer 8

TRUE

Question 9

A credit term of “2/10, n/30” means that the buyer may deduct 2% from the invoice if payment is made within 10 days from the end of the month

Answer 9

TRUE

Question 10

Purchases returns and allowances is a deduction from purchases

Answer 10

TRUE

Question 11

The cost of merchandise purchased during the period is determined by subtracting from the net purchases the amount of transportation costs incurred during the period

Answer 11

FALSE,adding

Question 12

The purchase of equipment not for resale should be debited to the purchases account

Answer 12

FALSE

Question 13

If the seller is to shoulder the cost of delivery, the term is stated as F.OB destination

Answer 13

TRUE

Question 14

The term freight prepaid or collect will dictate who shoulders the transportation costs

Answer 14

TRUE

Question 15

The two main systems for accounting for merchandise are periodic and perpetual

Answer 15

TRUE

Question 16

The perpetual inventory system requires recording the cost of each sale as it occurs.

Answer 16

TRUE

Question 17

There is no need for a physical inventory count in the perpetual inventory system.

Answer 17

FALSE

Question 18

The debit balance of the inventory account in the trial balance under the periodic Inventory system is the amount of the inventory at the end of the current year

Answer 18

FALSE,beginning

Question 19

The ending inventory of one period is the beginning inventory of the next period

Answer 19

TRUE

Question 20

The balance in the merchandise inventory account at the beginning of the period represents the cost of the merchandise on hand at that time.

Answer 20

TRUE