New Chapter 5:

Question 1

What is the difference between Perpetual and periodic systems?

Answer 1

Perpetual: -
maintains detailed records of the cost and sale of each inventory purchase.
- Records continuously to show inventory that should be on hand for each item.
- Cost of goods sold is determined with each transaction.
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Periodic:
- doesn’t keep detailed record of Goods on hand.
- cost of goods Sold is determined by a count at the end of the period.

Question 2

What is required for every credit purchase?

Answer 2

A purchase invoice

Question 3

What is FOB Destination?

Answer 3

This means that the seller is responsible for the good until it reaches the buyer (Destination).

The journal entry associated:
This cost is incurred by the seller as a “Freight out expense”
Credit cash

Question 4

What is FOB shipping point?

Answer 4

This indicates the responsibility of the cost is with
the buyer once it leaves the seller (shipping point)
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The journal entry associated:
- Debit inventory
- Credit: cash

Question 5

What is the journal entry for a return ( as the buyer)

Answer 5

Debit: accounts payable

Credit: inventory

Question 6

What is the journal entry for a return ( as the seller)

Answer 6

#1
Debit: Sales and return allowances
  Credit: Accounts receivable
#2
Debit: Inventory
   Credit: COGS

Question 7

What do the credit terms: 1/10 EOM mean?

Answer 7

1% discount if the account is paid for within the first 10 days of the next month.

Question 8

What do the credit terms n/10 EOM mean?

Answer 8

The net amount is due within the first 10 days of the next month

Question 9

What is the journal entry of a discount look like (buyer)?

Answer 9

Debit: Account payable(total )
Credit: inventory (discount amount)
Credit: cash (the total minus discount amount)

Question 10

What is the journal entry of a discount look like (seller)?

Answer 10

Debit -Cash (the total minus discount amount):
Debit- Sales Discount and Allowances (discount amount):
Credit: Account Receivable(total ):

Question 11

What is journal entry to record a sale for a merchandising company?

Answer 11

#1
Dr. Account Receivable
Cr. Revenue
#2
Dr. COGS
Cr. Inventory

Question 12

Describe the multistep income statement order?

Answer 12

Check chapter 5 of the notes fool.