CHAPTER 7 PART 2 Flashcards
The operating cycle involves the purchase and sale of inventory as well as the subsequent payment for purchases and collection of cash.
TRUE
A business can shorten its operating cycle by increasing its percentage of cash sales and reducing its percentage of credit sales.
TRUE
Merchandise inventory could include goods that are in transit
TRUE
An advantage of using the periodic inventory system is that it requires less recordkeeping than the perpetual inventory system.
TRUE
The periodic inventory system relies on a physical count of merchandise for the balance sheet amount.
FALSE
Under the periodic inventory system, cost of goods sold is treated as an account
FALSE
The periodic inventory system provides an up-to-date amount of inventory on hand
FALSE
Summing ending merchandise inventory and cost of goods sold gives the cost of goods available for sale.
TRUE
A physical Inventory is usually taken at the end of the accounting period.
TRUE
Under the periodic inventory system, purchases of merchandise are not recorded in the Merchandise Inventory account.
TRUE
An entity would be more likely to know the amount of inventory on hand if it used the periodic inventory system rather than the perpetual inventory system.
FALSE
Taking a physical inventory refers to making a count of all merchandise on hand at a particular time.
TRUE
When the periodic inventory system is used, a physical inventory should be taken at the end of the fiscal year
TRUE
the income statement of an entity that provides services only will not have cost of goods sold
TRUE
For a merchandising entity, the difference between net sales and operating expenses is called gross margin.
TRUE
Sales Returns and Allowances is described as a contra-revenue account
TRUE
On the income statement of a merchandising concern, profit is the amount by which net sales exceed operating expenses.
TRUE
Transportation Out is included in the cost of goods sold calculation.
FALSE
Advertising Expense appears as a selling expense on the income statement
TRUE
transportation In is considered a cost t of merchandise purchased.
TRUE
The difference between gross sales and net sales is equal to the sum of sales discounts, and sales returns and allowances.
TRUE
When the terms of sale include a sales discount, it usually is advisable for the buyer to pay within the discount period.
TRUE
The terms 2/10, n/30 mean that a 2% discount is allowed on payments made over 10 but before 30 days after the invoice date.
FALSE
Terms of 2/10, n/30 is an example of a trade discount.
FALSE
Goods should be recorded at their list price less any trade discounts involved.
TRUE
FOB shipping point means that the seller incurs the shipping costs.
FALSE
Under the perpetual inventory system, the cost of merchandise is debited to Merchandise Inventory at the time of purchase.
TRUE
The Merchandise Inventory account is not affected when a sales allowance is granted.
TRUE
Ending merchandise inventory is included in the calculation of the cost of goods available for sale.
FALSE
Ending merchandise inventory for year 1 automatically becomes beginning merchandise inventory for year 2.
TRUE
The calculation of the cost of goods available for sale during the year is not affected by the previous year’s ending inventory.
FALSE
The change in inventory level from the beginning to the end of the year affects the cost of goods sold.
TRUE
Transportation In is treated as a deduction in the cost of goods sold section of the Income statement.
FALSE
Under the periodic inventory system, the Purchases account is used to accumulate all purchases of merchandise for resale.
TRUE
