Test 2

Question 1

merchandise

Answer 1

consists of products (goods) that a company buys to resell to customers

Question 2

merchandiser

Answer 2

earns net income by buying and selling merchandise

Question 3

wholesaler

Answer 3

buys products from manufacturers and sells them to retailers

Question 4

retailer

Answer 4

buys products from manufacturers or wholesalers and sells them to consumers

Question 5

inventory/merchandise inventory

Answer 5

products that a company owns and intends to sell

Question 6

formula to compute income of a merchandiser

Answer 6

net sale-COGS=gross profit-expenses=net income

Question 7

operating cycle for a merchandiser

Answer 7

(a) cash purchases of merchandise to (b) inventory for sale to (c) credit sales to (d) accounts ­receivable to (e) cash

Question 8

company’s merchandise available for sale

Answer 8

beginning inventory + net purchases (ending inventory and COGS)

Question 9

Companies account for inventory in one of two ways:

Answer 9

perpetual and periodic system

Question 10

perpetual inventory system

Answer 10

updates accounting records for each purchase and sale of inventory

Question 11

periodic inventory system

Answer 11

updates the accounting records for purchases and sales of inventory only at the end of a period

Question 12

purchase returns

Answer 12

merchandise a buyer acquires but then returns to the seller

Question 13

purchase allowances

Answer 13

refers to a seller granting a price reduction (allowance) to a buyer of deficient or unacceptable merchandise

Question 14

FOB shipping point

Answer 14

the buyer accepts ownership when the goods depart the seller’s place of business; buyer pays shipping costs and has the risk of loss in transit; the goods are part of the buyer’s inventory when they are in transit

Question 15

FOB destination

Answer 15

ownership of goods transfers to the buyer when the goods arrive at the buyer’s place of business; the seller is responsible for paying shipping charges and has the risk of loss in transit; seller does not record revenue from this sale until the goods arrive at the destination because this transaction is not complete before that point

Question 16

Each sale of merchandise has two parts:

Answer 16

the revenue side and the cost side

Question 17

gross method

Answer 17

records sales at the gross amount and records sales discounts if, and when, they are taken

Question 18

net method

Answer 18

records sales at the net amount, which assumes that all discounts will be taken

Question 19

what kind of account is a sales discount?

Answer 19

contra revenue account

Question 20

credit memorandum

Answer 20

informs the buyer of a credit made to the buyer’s account receivable in the seller’s records

Question 21

multiple-step income statement

Answer 21

shows subtotals between sales and net income, categorizes expenses, and often reports the details of net sales and expenses

Question 22

selling expenses

Answer 22

include the expenses of advertising merchandise, making sales, and delivering goods to customers

Question 23

general and administrative expenses

Answer 23

include expenses related to accounting, human resource management, and financial management

Question 24

single-step income statement

Answer 24

income statement format that subtracts total expenses, including cost of goods sold, from total revenues with no other subtotals

Question 25

acid-test ratio (quick ratio)

Answer 25

quick assets (cash, short-term investments, and current receivables) divided by current ­liabilities

Question 26

what kind of account is an allowance for sale discount?

Answer 26

contra asset account

Question 27

sales refund payable

Answer 27

current liability account reported on balance sheet

Question 28

inventory returns estimated

Answer 28

current asset account (often as a subcategory of Inventory), reported in the balance sheet

Question 29

COGS (cost of goods sold)

Answer 29

term used for the expense of buying and preparing merchandise for sale

Question 30

merch. inventory

Answer 30

current asset

Question 31

the current period's ending inventory is:

Answer 31

the next period's beginning inventory

Question 32

credit terms 2/10, n/30

Answer 32

2% cash discount if amount is paid w/in 10 days, or the balance due in 30 days

Question 33

sales returns

Answer 33

merchandise that customers return to the seller after the sale

Question 34

net sales

Answer 34

sales - sales discounts - returns and allowances

Question 35

close sales account at the end of the accounting period with a:

Answer 35

debit

Question 36

goods on consignment

Answer 36

goods being shipped by owner (consignor) to another party (consignee)

Question 37

net realizable value

Answer 37

sales price - cost of making the sale