FAR THEORY - OTHERS Flashcards by Nicole Ann Dela Cruz

Which one of the following is not a difference between a retail business and a service business?

a. accounting equation
b. the inclusion of gross profit in the income statement
c. merchandise inventory included in the balance sheet
d. in what is sold

a. accounting equation

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Net income plus operating expenses is equal to

a. gross profit
b. net sales
c. cost of merchandise sold
d. cost of goods available for sale

a. gross profit

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What is the term applied to excess net revenue from sales over the cost of merchandise sold?

a. income from operations
b. gross sales
c. net income
d. gross profit

d. gross profit

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The term “inventory” indicates

a. merchandise held for sale in the normal course of business
b. supplies
c. materials in the process of production or held for the production
d. both merchandise held for sale in the normal course of business and materials in the process of production or held for the production

d. both merchandise held for sale in the normal course of business and materials in the process of production or held for the production

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Expenses that are incurred directly or entirely in connection with the sale of merchandise are classified as

a. other expenses
b. selling expenses
c. general expenses
d. administrative expenses

b. selling expenses

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Office salaries, depreciation of office equipment, and office supplies are examples of what expenses?

a. other expense
b. selling expense
c. administrative expense
d. miscellaneous expense

c. administrative expense

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The form of the income statement that derives its name from the fact that the total of all expenses is
deducted from the total of all revenues is called a

a. multiple-step statement
b. revenue statement
c. single-step statement
d. report-form statement

c. single-step statement

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When the three sections of a balance sheet are presented on a page in a downward sequence, it is called the

a. account form
b. report form
c. comparative form
d. horizontal form

b. report form

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The statement of retained earnings shows

a. only net income/net loss, dividends, and beginning and ending retained earnings

b. only total assets, beginning and ending
retained earnings

c. only net income, beginning and ending
retained earnings

d. only net income, beginning Capital Stock,
and dividends

a. only net income/net loss, dividends, and beginning and ending retained earnings

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Merchandise inventory is classified on the balance sheet as a

a. Long-Term Liability
b. Current Asset
c. Current Liability
d. Long-Term Asset

b. Current Asset

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Which account is not classified as a selling expense?

a. Advertising Expense
b. Transportation-Out
c. Sales Discounts
d. Sales Salaries

c. Sales Discounts

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The primary difference between a periodic and perpetual inventory system is that a

a. the periodic system provides an easy means to determine inventory shrinkage

b. the periodic system keeps a record showing the inventory on hand at all times

c. the periodic system records the cost of the sale on the date the sale is made

d. the periodic system determines the inventory on hand only at the end of the accounting period

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The inventory system employing accounting records that continuously disclose the amount of inventory is called

a. perpetual
b. physical
c. periodic
d. retail

a. perpetual

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When the perpetual inventory system is used, the inventory sold is shown on the income statement as

a. purchases
b. net purchases
c. purchases returns and allowances
d. cost of merchandise sold

d. cost of merchandise sold

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When comparing a retail business to a service business, the financial statement that changes the most is the

a. Statement of Cash Flow
b. Statement of Retained Earnings
c. Balance Sheet
d. Income Statement

d. Income Statement

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When comparing a retail business to a service business, the financial statement that changes the least is the

a. Income Statement
b. Statement of Cash Flow
c. Statement of Retained Earnings
d. Balance Sheet

d. Balance Sheet

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Using a perpetual inventory system, the entry to record the sale of merchandise on account includes a

a. debit to Sales
b. credit to Merchandise Inventory
c. credit to Accounts Receivable
d. debit to Merchandise Inventory

b. credit to Merchandise Inventory

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Which of the following accounts has a normal debit balance?

a. Interest Revenue
b. Sales Returns and Allowances
c. Accounts Payable
d. Sales

b. Sales Returns and Allowances

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Merchandise is ordered on November 12; the seller ships the merchandise, and the invoice is prepared,
dated, and mailed by the seller on November 15; the buyer receives the merchandise on November 17;
the entry is made in the buyer’s accounts on November 18. The credit period begins on what date?

a. November 17
b. November 18
c. November 15
d. November 12

c. November 15 - INVOICE DATE

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If merchandise sold on the account is returned to the seller, the seller may inform the customer of the
details by issuing a

a. purchase invoice
b. sales invoice
c. credit memorandum
d. debit memorandum

c. credit memorandum - reduces the outstanding balance of the buyer and issued when there is:
-return of goods
-overbilling
-price adjustments
-shipping errors

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The arrangements between buyer and seller as to when payments for merchandise are to be made are
called

a. cash on demand
b. gross cash
c. credit terms
d. net cash

c. credit terms

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In credit terms of 1/10, n/30, the “1” represents the

a. the full amount of the invoice
b. number of days when the entire amount is due
c. percent of the cash discount
d. number of days in the discount period

c. percent of the cash discount

Explanation:
-1% discount if the invoice is paid within 10 days of the invoice date.
-full invoice amount is due within 30 days of the invoice date. No discount is offered after the 10-day period, and the full amount must be paid by day 30.

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Merchandise with a sales price of P500 is sold on
account with term 2/10, n/30. The journal entry to
record the sale would include a

a. Debit to Sales Discounts for P10
b. Credit to Sales for P500
c. Debit to Accounts Receivable for P490
d. debit to Cash for P500

b. Credit to Sales for P500

Which of the following accounts has a normal credit balance?

a. Sales
b. Merchandise Inventory
c. Delivery Expense
d. Sales Returns and Allowances

a. Sales

The entry to record the return of merchandise from a customer would include a a. credit to Sales b. debit to Sales c. debit to Sales Returns and Allowances d. credit to Sales Returns and Allowances

c. debit to Sales Returns and Allowances

Sales to customers who use bank credit cards, such as MasterCard and Visa, are generally treated as a. sales on account b. sales when the credit card company remits the cash c. sales returns d. cash sales

d. cash sales

When a buyer returns merchandise purchased for cash, the buyer may record the transaction using the following entry a. debit Cash; credit Sales Returns and Allowances b. debit Sales Returns and Allowances; credit Cash c. debit Cash; credit Merchandise Inventory d. debit Merchandise Inventory; credit Cash

c. debit Cash; credit Merchandise Inventory

When merchandise is returned under the perpetual inventory system, the buyer would credit a. Purchases Returns and Allowances b. Merchandise Inventory c. Accounts Payable d. depending on the inventory system used.

b. Merchandise Inventory

When purchases of merchandise are made for cash, the transaction may be recorded with the following entry a. debit Merchandise Inventory; credit Cash b. debit Cash; credit Merchandise Inventory c. debit Merchandise Inventory; credit Cash Discounts d. debit Merchandise Inventory; credit Purchases

a. debit Merchandise Inventory; credit Cash

In recording the cost of merchandise sold for cash, based on data available from perpetual inventory records, the journal entry is a. debit Cost of Merchandise Sold; credit Merchandise Inventory b. debit Merchandise Inventory; credit Cost of Merchandise Sold c. debit Accounts Receivable; credit Merchandise Inventory d. debit Cost of Merchandise Sold; credit Sales

a. debit Cost of Merchandise Sold; credit Merchandise Inventory

The amount of the total cash paid to the seller for merchandise purchased would normally include a. the list price less the sales tax b. only the sales tax c. only the list price d. the list price plus the sales tax

d. the list price plus the sales tax

Which of the following accounts usually has a debit balance? a. Allowance for Doubtful Accounts b. Transportation-In c. Purchase Discounts d. Sales tax Payable

b. Transportation-In

Merchandise is sold for cash. The selling price of the merchandise is P2,000, and the sale is subject to a 5% state sales tax. The journal entry to record the sale would include a. A credit to Sales for P2,100. b. A debit to Cash for P2,000. c. A credit to Sales Tax Payable for P100. d. None of the above.

c. A credit to Sales Tax Payable for P100.

If the buyer is to pay the transportation costs of delivering merchandise, delivery terms are stated as a. FOB destination b. FOB shipping point c. FOB buyer d. FOB n/30

b. FOB shipping point

If the seller is to pay the transportation costs of delivering merchandise, the delivery terms are stated as a. FOB shipping point b. FOB n/30 c. FOB destination d. FOB seller

c. FOB destination

Orange Co. sold Red Co. merchandise on FOB shipping point, 2/10, net 30, for P10,000. Orange Co. prepaid the P200 shipping charge. Using the perpetual inventory system, which of the following entries will Red Co. make if Red Co. pays within the discount period? a. Accounts Payable-Orange Co., debit P10,200; Merchandise Inventory, credit P200; Cash, credit P10,000 b. Accounts Payable-Orange Co., debit P10,000; Transportation In, credit P200; Cash, credit P9,800 c. Accounts Payable-Orange Co., debit P10,000; Transportation In, debit P200; Cash, credit P10,200 d. Accounts Payable-Orange Co., debit P10,200; Merchandise Inventory, debit P200; Cash, credit P10,400

a. Accounts Payable-Orange Co., debit P10,200; Merchandise Inventory, credit P200; Cash, credit P10,000

A chart of accounts for a merchandising business usually a. requires more accounts than does the chart of accounts for a service business b. does not have a Cost of Merchandise Sold account if a perpetual inventory system is used c. is standardized by the IASB for all merchandising businesses d. is the same as the chart of accounts for a service business

a. requires more accounts than does the chart of accounts for a service business

Robles Co. sells P1,000 of inventory to Salas Co. for cash. Robles paid P650 for the merchandise. Under a perpetual inventory system, the following journal entry(ies) would be recorded. a. Cash 1,000 Dr, Sales 1,000 Cr b. Cash 1,000 Dr, Merchandise Inventory 650 Cr c. Cash 1,000 Dr, Sales 1,000 Cr, Cost of Merchandise Sold 650 Dr, Merchandise Inventory 650 Cr. d. Accounts Receivable 1,000 Dr, Sales 1,000 Cr, Cost of Merchandise Sold 650 Dr, Merchandise Inventory 650 Cr.

c. Cash 1,000 Dr, Sales 1,000 Cr, Cost of Merchandise Sold 650 Dr, Merchandise Inventory 650 Cr.

Apple Co sells merchandise on credit to Zea Co for P8,000. The invoice is dated September 15 with terms of 1/15, net 45. If Zea Co. chooses not to take the discount, when should the payment be made? a. October 30 b. September 30 c. October 15 d. September 25

a. October 30

Discounts taken by a buyer because of early payment are recorded on the seller’s accounting records as a. Sales discount b. Early payment discount c. Purchases discount d. Trade discount

a. Sales discount

Who pays the freight costs when the terms are FOB shipping point? a. the ultimate customer b. either the seller or the buyer c. the seller d. the buyer

d. the buyer

Who pays the freight cost when the terms are FOB destination? a. either the buyer or the seller b. the seller c. the buyer d. the customer

b. the seller

Which of the following accounts will only be found in the chart of accounts of a merchandising company? a. Merchandise Inventory b. Sales c. Accounts Receivable d. Accounts Payable

a. Merchandise Inventory

Which items would affect the cost of merchandise inventory acquired during the period? a. all of the answers are correct b. quantity discounts c. cash discounts d. transportation-in

a. all of the answers are correct

If the title to merchandise purchases passes to the buyer when the goods are delivered to the buyer, the terms are a. FOB shipping point b. consigned c. n/30 d. FOB destination

d. FOB destination

If the title to merchandise purchases passes to the buyer when the goods are shipped from the seller, the terms are a. n/30 b. FOB shipping point c. FOB destination d. consigned

b. FOB shipping point

Under the perpetual inventory system, all purchases of merchandise are debited to the account entitled a. Cost of Merchandise Sold b. Cost of Merchandise Available for Sale c. Merchandise Inventory d. Purchases

c. Merchandise Inventory

When the perpetual inventory system is used, the inventory sold is debited to a. supplies expense b. merchandise inventory c. cost of merchandise sold d. sales

c. cost of merchandise sold

Under a perpetual inventory system a. the purchase returns and allowances account is credited when goods are returned to vendors b. there is no need for a year-end physical count c. increases in inventory resulting from purchases are debited to Purchases d. accounting records continuously disclose the amount of inventory

d. accounting records continuously disclose the amount of inventory

The proper journal entry to record the receipt of inventory purchased on account in a perpetual inventory system would be: a. Jan 1 Purchases (250.00); Accounts Receivable (250.00) b. Jan 1 Inventory (250.00); Accounts Payable (250.00) c. Jan 1 Office Supplies (250.00); Accounts Payable (250.00) d. Jan 1 Purchases (250.00); Accounts Payable (250.00)

b. Jan 1 Inventory (250.00); Accounts Payable (250.00)

Which items should not be included in the cost of ending merchandise inventory? a. units on hand in the warehouse b. units on consignment c. purchased units in transit shipped FOB destination d. both units on consignment and units on hand in the warehouse

c. purchased units in transit shipped FOB destination

Inventory shortage is recorded when a. merchandise is returned to a seller. count of inventory and inventory records. b. a buyer returns merchandise. c. there is a difference between a physical d. merchandise purchased from a seller is incomplete or short.

c. there is a difference between a physical

Which account will be included in service and merchandising companies closing entries? a. Sales Discounts b. Sales Returns and Allowances c. Sales d. Cost of Merchandise Sold

c. Sales

Which of the following accounts will not be found in the Cost of Merchandise Sold section on the Income Statement? a. Purchases b. Merchandise Inventory c. Sales Returns and Allowances d. Transportation In

c. Sales Returns and Allowances

Under the periodic inventory system, the journal entry to record the purchase of merchandise inventory will include a debit to a. Purchases b. Merchandise Inventory c. Cost of Merchandise Purchased d. Accounts Payable

a. Purchases

Under a periodic inventory system, closing entries will include a. Dr. Sales, Purchases Returns and Allowances, Purchases Discounts b. Adjust Merchandise Inventory Account to match physical inventory c. All are correct d. Cr. Purchases, Sales Discounts, Sales Returns, and Allowances

c. All are correct

The proper journal entry to record the receipt of inventory purchased on account in a periodic inventory system would be: a. Jan 1: Inventory (250.00); Accounts Payable (250.00) b. Jan 1: Purchases (250.00); Accounts Receivable (250.00) c. Jan 1: Office Supplies (250.00); Accounts Payable (250.00) d. Jan 1: Purchases (250.00); Accounts Payable (250.00)

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FAR THEORY - OTHERS Flashcards

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