Lesson 7.5 Account Title: Expense Accounts for Merchandising and Manufacturing Businesses

Question 1

EXPENSE ACCOUNTS FOR MERCHANDISING AND MANUFACTURING BUSINESSES

• A temporary account used in the periodic inventory system to record the purchases of merchandise for resale. (Purchases of equipment or supplier are not recorded in the purchase account). This account reports the gross amount of purchases of merchandise. Net purchase is the amount of purchases minus purchases returns, purchases allowance and purchases discounts.

Answer 1

Purchases

Question 2

EXPENSE ACCOUNTS FOR MERCHANDISING AND MANUFACTURING BUSINESSES

• It refers to the direct costs attributable to the procurement or production of the goods sold by the business. It is the cost of the products that a retailer, distributor, or manufacturer has sold. This account is used in perpetual inventory system of accounting

Answer 2

Cost of Goods Sold

Question 3

EXPENSE ACCOUNTS FOR MERCHANDISING AND MANUFACTURING BUSINESSES

• The temporary contra purchases account used in a periodic inventory system which represents the amounts of merchandise that were returned to suppliers and the amounts allowed as deductions by suppliers for goods not returned.

Answer 3

Purchase Returns and Allowances

Question 4

EXPENSE ACCOUNTS FOR MERCHANDISING AND MANUFACTURING BUSINESSES

• It is a deduction that a company may receive if the supplier offers it and the company pays the supplier’s invoice within a specified period of time. It is also known as the cash discount or early payment discount.

Answer 4

Purchase Discounts

Question 5

EXPENSE ACCOUNTS FOR MERCHANDISING AND MANUFACTURING BUSINESSES

• The shipping cost to be paid by the buyer of merchandise purchased when the terms are FOB shipping point. It is considered to be part of the cost of the merchandise and should be included in inventory if the merchandise has been sold.

Answer 5

Freight-in

Question 6

NON OPERATING REVENUE AND EXPENSES ACCOUNTS

• Interest and dividends earned on bank accounts, investments or notes receivable. This account is increased when the interest is earned and either Cash or Interest Receivable is also increased.

Answer 6

Interest Revenues

Question 7

NON OPERATING REVENUE AND EXPENSES ACCOUNTS

• Occurs when the company sells one of its assets (other than inventory) for more than the asset’s book value.

Answer 7

Gain on Sale of Assets

Question 8

NON OPERATING REVENUE AND EXPENSES ACCOUNTS

• Occurs when the company sells one of its assets (other than inventory) for less than the asset’s book value.

Answer 8

Loss on Sale of Assets