MODULE 10 Flashcards
What is a merchandising business?
A: A merchandising business buys and sells goods without changing their physical form.
Give an example of a merchandising business.
A: A grocery store that buys and sells eggs without processing them.
What type of business uses raw materials to create new products?
A: A manufacturing business.
What are examples of general merchandise resellers?
A: Grocery stores, department stores, hardware stores, pharmacies, sari-sari stores, and online stores.
What are examples of distributors and dealers?
A: Rice wholesalers and vegetable dealers.
How do merchandising businesses earn profit?
A: By purchasing inventory, selling it, and reinvesting in new inventory.
What is the profit cycle for cash sales?
A: Cash → Inventory → Cash.
What is the profit cycle for sales on account?
A: Cash → Inventory → Accounts Receivable → Cash.
What is inventory?
A: Inventory refers to goods a merchandising business purchases for resale.
What are the two types of inventory systems?
A: Periodic Inventory System and Perpetual Inventory System.
How does a periodic inventory system work?
A: The inventory account is updated only after a physical count, and the cost of goods sold is determined periodically.
How does a perpetual inventory system work?
A: The inventory account is updated after every transaction, maintaining a running balance of goods on hand.
When is revenue recognized in a merchandising business?
A: When the title of goods is transferred to the buyer, usually at the point of delivery.
What are gross sales?
A: The total sales for cash and credit during an accounting period.
How is a cash sale recorded in the journal?
A: Debit Cash, Credit Sales Revenue.
Q: If a company sells merchandise for P25,000 in cash, what is the journal entry?
A:
Debit: Cash P25,000
Credit: Sales P25,000
What is a sales discount?
A: A discount offered for prompt payment within a specified period.
Q: What does “2/10, n/60” mean?
A: A 2% discount is available if the invoice is paid within 10 days; otherwise, the full amount is due in 60 days.
Q: If merchandise worth P4,000 is sold on Sept. 20 with terms 2/10, n/60, when is the last day to avail the discount?
A: September 30 (10 days after the sale).
Q: How is a sales discount recorded in the journal?
A: Debit Sales Discounts, Credit Accounts Receivable.
Q: What happens when a customer returns merchandise?
A: The amount is deducted from Accounts Receivable.
Q: If a customer returns P1,000 worth of goods, how is it recorded?
A:
Debit: Sales Returns and Allowance P1,000
Credit: Accounts Receivable P1,000
Q: If a customer pays within the discount period on Sept. 30, how much do they pay for a P3,000 invoice (after return)?
A: P2,940 (P3,000 - 2% discount of P60).
Q: How is a payment with a sales discount recorded?
A:
Debit: Cash P2,940
Debit: Sales Discounts P60
Credit: Accounts Receivable P3,000
Q: If a customer pays after the discount period (e.g., October 5), how much do they pay?
A: P3,000 (no discount applied).
Q: How is a late payment recorded in the journal?
A:
Debit: Cash P3,000
Credit: Accounts Receivable P3,000
