When merchandise inventory is purchased with credit terms of 2/10, n/60, the credit period is 60 days from date of the invoice.
True / False
True
Merchandise purchased on June 8 with credit terms of 2/10, n/30, must be paid sooner than with credit terms of n/10 EOM.
True / False
True
Under the periodic inventory system, inventory shrinkage, theft, and spoilage are accounted for in a special account.
True / False
False
An inventory system in which the business has up-to-date data as to the quantity of goods on hand is called a periodic inventory system.
True / False
False
A deduction allowed from the invoice price of goods if payment is made within a specified period of time is called a trade discount.
True / False
False
Merchandise with a list price of $100, subject to a trade discount of 40 percent and sold with credit terms of 2/10, n/60, would cost the buyer $58.80 if payment is made within the discount period.
True / False
True
When goods are shipped under freight terms of FOB shipping point (FOB factory), the buyer of the goods pays the freight charges.
True / False
True
When a return of merchandise requires the buyer to notify the seller of the reduction in the invoice due to the return, the memorandum sent by the buyer is called a debit memorandum.
True / False
True
The cost of goods sold is determined by adding the cost of purchases to the beginning merchandise inventory and subtracting the ending merchandise inventory.
True / False
True
An income statement in which the details of the cost of goods sold are shown is called a single-step income statement.
True / False
False
In a periodic inventory system, transportation charges for merchandise are added to net purchases to determine the cost of goods purchased.
True / False
True
In a perpetual inventory system, transportation charges are recorded with a debit to the merchandise inventory account.
True / False
True
Transportation-In, Freight-In, and Delivery Expense are all the same account.
True / False
False
Under a periodic system with inventory included in the closing entry procedure, the Credit column of the Income Statement columns of the work sheet will likely contain more than revenue account balances.
True / False
True
The purpose of including the Merchandise Inventory account (a real account) in the closing procedure is to close the beginning balance to the Income Summary account and enter the unsold balance in the Merchandise Inventory account (periodic system).
True / False
True
The steps in the accounting cycle are different for a merchandising business than they are for a service business.
True / False
False
If net sales for the business totals $150,000, gross profit is $65,000, and net income is $40,000, then the cost of goods sold will total $25,000.
True / False
False
If net sales for the business totals $50,000, gross margin is $24,000, and net income is $4,000, then the operating expenses for this company will total $20,000.
True / False
True
The income statement for the period shows a net loss for the year of $4,500. When the closing entries are prepared, this net loss will be closed into the Capital account of a proprietorship business with a debit to the Income Summary account and a credit to the Retained Earnings account.
True / False
False
Operating expenses include general expenses, administrative expenses, and cost of goods sold.
True / False
False
Merchandise with a list price of $2,000 is sold with a trade discount of 30% and cash terms of 2/10, n/30. If the merchandise is paid for within the discount period, the total cost will be $1,372.
True / False
True
Merchandise is purchased FOB shipping point. The seller will pay the freight charges.
True / False
False
A _______________ discount, called a sales discount by the seller and a purchase discount by the buyer, is a reduction in the price of merchandise that is granted by a seller to a purchaser.
CASH
A _______________ discount is a cash discount granted to the purchaser for paying within the discount period.
PURCHASE
A _______________ discount is a cash discount granted to customers for paying within the discount period.
SALES
An income statement format that shows intermediate totals between sales and net income and detailed computations of net sales and costs of goods sold is called a classified, _______________ income statement.
MULTIPLE-STEP
Another term for the 'cost of merchandise sold' is the cost of _______________ sold
GOODS
A notification that the sender has entered a credit in the recipient's account maintained by the sender is called a _______________ (DEBIT or CREDIT) memorandum.
CREDIT
Credit terms of 2/10, n/30 indicate a _______________ period of thirty days.
CREDIT
Terms of 2/10, n/60 shown on an invoice are called _______________ terms.
CREDIT
Credit terms of 2/10, n/60 indicate a _______________ period of ten days.
DISCOUNT
The terms EOM mean payment is due at the _______________.
END-OF-MONTH
_______________ is the abbreviation for free on board.
FOB
FOB _______________ means that the seller pays the shipping costs and the ownership of the goods transfers to the buyer at the buyer's place of business.
DESTINATION
FOB _______________ (also called factory) means that the buyer pays the shipping costs and the ownership of the goods transfers to the buyer at the shipper's place of business.
SHIPPING POINT
Expenses that support the overall obligations of a business and include the expenses of such activities as providing accounting services, human resource management, and financial management are called general and _______________ expenses.
ADMINISTRATIVE
Another term for gross margin is gross _______________.
PROFIT
The _______________ price is the catalogue price of an item before any trade discount is deducted.
LIST
Products, also called goods, are _______________ that a company acquires for the purpose of reselling them to customers.
MERCHANDISE
A _______________ earns net income by buying and selling merchandise.
MERCHANDISER
A method of accounting that records the cost of inventory purchased but does not track the quantity on hand or sold to customers is called a _______________ inventory system.
PERIODIC
A method of accounting that maintains continuous records of the cost of inventory on hand and the cost of goods sold is called a _______________ inventory system.
PERPETUAL
A _______________ is a middleman that buys products from manufacturers or wholesalers and sells them to consumers.
RETAILER
Advertising expense is an example of a _______________ (GENERAL or SELLING) expense on a multi-step income statement.
SELLING
_______________ is the term used for inventory losses that occur as a result of shoplifting or deterioration.
SHRINKAGE
A _______________ income statement includes cost of goods sold as an operating expense and shows only one subtotal for total expenses.
SINGLE-STEP
A register of information outside the usual accounting records and accounts is called a _______________ record.
SUPPLEMENTARY
A _______________ discount is a reduction below a list or catalogue price that may vary in amount for wholesalers, retailers, and final consumers.
TRADE
A _______________ is a middleman that buys products from manufacturers or other wholesalers and sells them to retailers or other wholesalers.
WHOLESALER
A reduction in the price of merchandise that is granted by a seller to a purchaser in exchange for the purchaser's making payment within a specified period of time called the discount period.
Cash discount
A notification that the sender has entered a credit in the recipient's account maintained by the sender.
Credit memorandum
A notification that the sender has entered a debit in the recipient's account maintained by the sender.
Debit memorandum
A method of accounting that records the cost of inventory purchased but does not track the quantity on hand or sold to customers; the records are updated at the end of each period to reflect the results of physical counts of the items on hand.
Periodic inventory system
A method of accounting that maintains continuous records of the cost of inventory on hand and the cost of goods sold.
Perpetual inventory system
A term used by a purchaser to describe a cash discount granted to the purchaser for paying within the discount period.
Purchase discount
A middleman that buys products from manufacturers or wholesalers and sells them to consumers.
Retailer
A term used by a seller to describe a cash discount granted to customers for paying within the discount period.
Sales discount
An income statement format that includes cost of goods sold as an operating expense and shows only one subtotal for total expenses.
Single-step income statement
A register of information outside the usual accounting records and accounts; also called supplemental records.
Supplementary records
A reduction below a list or catalogue price that may vary in amount for wholesalers, retailers, and final consumers.
Trade discount
A middleman that buys products from manufacturers or other wholesalers and sells them to retailers or other wholesalers.
Wholesaler
