question

The ending merchandise inventory for 2007 is the same as the beginning merchandise inventory for 2008.

answer

true

question

A seller may grant a buyer a reduction in selling price and this is called a sales allowance.

answer

true

question

Comparing the merchandise entries for the seller and the buyer, the seller is required to record more entries for the same transactions than the buyer.

answer

true

question

Income that cannot be associated definitely with operations, such as a gain from the sale of a fixed asset, is listed as Other Income on the multiple-step income statement.

answer

true

question

In a perpetual inventory system, merchandise returned to vendors reduces the merchandise inventory account.

answer

true

question

When companies use a perpetual inventory system, the recording of the purchase of inventory will include a debit to purchases.

answer

false

question

Under the periodic inventory system, the cost of goods sold is equal to the beginning merchandise inventory plus the cost of goods purchased plus the ending merchandise inventory.

answer

false

question

A sale of $600 on account, subject to a sales tax of 5%, would be recorded as an account receivable of $600.

answer

false

question

In a computerized accounting system, special journals may be replaced by electronic forms that capture the necessary information.

answer

true

question

In a multi-step income statement the dollar amount for income from operations is always the same as net income.

answer

false

question

The form of the balance sheet in which assets, liabilities, and owner's equity are presented in a downward sequence is called the report form.

answer

true

question

Cost of merchandise sold is the amount that the merchandising company pays for the merchandise it intends to sell.

answer

false

question

When a large quantity of merchandise is purchased, a reduction allowed on the sale price is called a trade discount.

answer

true

question

Other income and expenses are items that are not related to the primary operating activity.

answer

true

question

In a perpetual inventory system, the Merchandise Inventory account is only used to reflect the beginning inventory.

answer

false

question

In many retail businesses, inventory is the largest current asset.

answer

true

question

The abbreviation FOB stands for Free On Board.

answer

true

question

On the income statement in the single-step form, the total of all expenses is deducted from the total of all revenues.

answer

true

question

When a merchandising business is compared to a service business, the financial statement that is not affected by that change is the Statement of Owner's Equity.

answer

true

question

he cost of merchandise inventory is limited to the purchase price less any purchase discounts.

answer

false

question

Discounts taken by the buyer for early payment of an invoice are credited to Cash Discounts by the buyer.

answer

false

question

Most companies will not take a purchases discount, because 1% or 2% discounts are insignificant.

answer

false

question

Closing entries for a merchandising business are not similar to those for a service business.

answer

false

question

When the seller offers a sales discount, even if borrowing has to be done, it is generally advantageous for the buyer to pay within the discount period.

answer

true

question

Merchandise Inventory normally has a debit balance

answer

true

question

When the terms of sale are FOB shipping point, the buyer should pay the transportation charges.

answer

true

question

Under a periodic inventory system, the merchandise on hand at the end of the year is determined by a physical count of the inventory.

answer

true

question

If payment is due by the end of the month in which the sale is made, the invoice terms are expressed as n/30.

answer

false

question

A deduction allowed to wholesalers and retailers from the price of merchandise listed in catalogs is called cash discounts.

answer

false

question

A business using the perpetual inventory system, with its detailed subsidiary records, does not need to take a physical inventory.

answer

false

question

Merchandise is sold for $4,500, terms FOB destination, 2/10, n/30, with prepaid transportation costs of $250. If $800 of the merchandise is returned prior to payment and the invoice is paid within the discount period, the amount of the sales discount is $79.

answer

false

question

Title to merchandise shipped FOB shipping point passes to the buyer upon delivery of the merchandise to the buyer's place of business.

answer

false

question

Net sales is equal to sales minus cost of merchandise sold.

answer

false

question

Computerized systems can be used to capture accounting information such as accounts receivable, inventory items, accounts payable, and sales.

answer

true

question

In a periodic inventory system, the cost of goods purchased includes the cost of transportation-in.

answer

true

question

In the Merchandising Income Statement, sales will be reduced by sales discounts and sales returns and allowances to arrive at net sales.

answer

true

question

One of the most important differences between a service business and a retail business is in what is sold.

answer

true

question

In a perpetual inventory system, when merchandise is returned to the seller, Cost of Merchandise Sold is one of the accounts debited to record the transaction.

answer

true

question

Sales to customers who use bank credit cards, such as MasterCard and VISA, are generally treated as credit sales.

answer

false

question

Purchases of merchandise are typically credited to the merchandise inventory account under the perpetual inventory system.

answer

false

question

Gross profit minus selling expenses equals net income.

answer

false

question

Under the perpetual inventory system, a company purchases merchandise on terms 2/10, n/30. If payment is made within 10 days of the purchase, the entry to record the payment will include a credit to Cash and a credit to Purchase Discounts.

answer

false

question

The adjusting entry to record inventory shrinkage would generally include a debit to Cost of Merchandise Sold.

answer

true

question

When merchandise that was sold is returned, a credit to sales returns and allowances is made.

answer

false

question

The seller records the sales tax as part of the sales amount.

answer

false

question

If the perpetual inventory system is used, an account entitled Cost of Merchandise Sold is included in the general ledger.

answer

true

question

Under the perpetual inventory system, when a sale is made, both the retail and cost values are recorded.

answer

true

question

When merchandise is sold for $500 plus 5% sales tax, the Sales account should be credited for $525.

answer

false

question

Transportation In is the amount paid by the company to deliver merchandise sold to a customer.

answer

false

question

The single-step income statement is easier to prepare, but a criticism of this format is that gross profit and income from operations are not readily available.

answer

true

question

Sales Returns and Allowances is a contra-revenue account.

answer

true

question

Under the perpetual inventory system, the cost of merchandise sold is recorded when sales are made.

answer

true

question

If the ownership of merchandise passes to the buyer when the seller delivers the merchandise for shipment, the terms are stated as FOB destination.

answer

false

question

The service fee that credit card companies charge retailers varies and is the primary reason why some businesses do not accept all credit cards.

answer

true

question

In the periodic inventory system, purchases of merchandise for resale are debited to the Purchases account.

answer

true

question

A buyer who acquires merchandise under credit terms of 1/10, n/30 has 30 days after the invoice date to take advantage of the cash discount.

answer

false

question

The accounts Purchases, Purchases Returns and Allowances, Purchases Discounts, and Transportation In are found on the balance sheet.

answer

false

question

Transportation-in is considered a cost of purchasing inventory.

answer

true

question

Sellers and buyers are required to record trade discounts.

answer

false

question

In a merchandise business, sales minus operating expenses equals net income.

answer

false

question

If merchandise costing $2,500, terms FOB destination, 2/10, n/30, with prepaid transportation costs of $100, is paid within 10 days, the amount of the purchases discount is $50.

answer

true

question

The ratio of net sales to assets measures how effectively a business is using its assets to generate sales.

answer

true

question

The effect of a sales return and allowance is a reduction in sales revenue and a decrease in cash or accounts receivable.

answer

true

question

Purchased goods in transit, shipped FOB destination, should be excluded from ending inventory.

answer

true

question

Merchandise inventory account is found on the income statement.

answer

false

question

Purchased goods in transit should be included in the ending inventory if the goods were shipped FOB shipping point.

answer

true

question

Sales Discounts is a revenue account with a credit balance.

answer

false

question

As inventory is sold in many retail businesses, the largest expense is created.

answer

true

question

As we compare a merchandise business to a service business, the financial statement that changes the most is the Balance Sheet.

answer

false

question

Retailers record all credit card sales as charge sales.

answer

false

question

The seller may prepay the transportation costs even though the terms are FOB shipping point.

answer

true

question

The buyer will include the sales tax as part of the cost of merchandise purchased.

answer

true

question

If the buyer bears the transportation costs related to a purchase, the terms are said to be FOB destination.

answer

false

question

The chart of accounts for a merchandise business would include an account called Delivery Expense.

answer

true

question

Service businesses provide services for income, while a merchandising business sells merchandise.

answer

true

CHAPTER 6 T/F – Flashcards

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