ACCT 2100 Lecture Notes - Lecture 7: Gross Margin, Perpetual Inventory, Income Statement

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26 Aug 2016

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Document Summary

Merchandising companies earn profits by selling inventory at prices that are higher than the cost paid for the goods. Merchandising companies include retail companies (companies that sell goods to the final consumer) and wholesale companies (companies that sell to other merchandising companies). The products sold by merchandising companies are called inventory. Purchases and sales of inventory can be recorded continually as goods are bought and sold (perpetual system) or at the end of the accounting period (period system). Accounting for inventory includes the treatment of cash discounts, transportation costs, and returns and allowances. The cost of inventory is the list price less any purchases and returns and allowances and purchase discounts, plus transportation-in costs. The cost of freight paid to acquire inventory (transportation-in) is considered a product cost. The cost of freight paid to deliver inventory to customers (transportation-out) is a selling expense.

Related Questions

16) Petty cash payments are recorded in the accounting systemwhen:

the petty cash fund needs to be replenished

a payment is made out of petty cash

a bank reconciliation is prepared for the petty cash fund

cash is received from returns of merchandise

21)

In a perpetual system, when inventory is sold on account:

Sales Revenue is increased and Accounts Receivable isdecreased.

Sales Revenue, Cost of Goods Sold, and Accounts Receivable areincreased while Inventory is decreased.

Sales Revenue and Accounts Receivable are increased, and Cost ofGoods Sold and Inventory are decreased.

Sales Revenue is increased and Inventory is decreased.

22 )

Multistep income statements:

are required for merchandise companies.

contain more detail than just listing revenues and expenses.

are required when the perpetual inventory method is used.

classify Cost of Goods Sold as a selling expense.

rubykangaroo214

12 ACCOUNTING QUESTIONS

4. Using a perpetual inventory system, the buyer'sjournal entry to record the return of merchandise purchased onaccount includes a:

Select one:

A. Credit to Cost of Goods Sold

B. Credit to Accounts Payable

C. Credit to Purchase Returns

D. Credit to Inventory

6.Using a perpetual inventory system, the buyerâsjournal entry to record the payment for merchandise within thediscount period includes a:

Select one:

A. Debit to Accounts Payable

B. Debit to Cost of Goods Sold

C. Debit to Purchases

D. Debit to Inventory

7.Which of the following statements regarding cost flows istrue?

Select one:

Cost of goods available for sale is equal to beginning inventoryminus cost of goods purchased.

CGAS = beginning inventory minus ending inventory.

Cost of goods available for sale is equal to beginning inventoryplus cost of goods purchased.

CGAS = cost of goods sold minus cost of goods purchased.

10. Using a perpetual inventory system, the buyerâsjournal entry to record the purchase of merchandise on creditincludes a:

Select one:

A. Debit to Inventory

B. Debit to Freight In

C. Debit to Cost of Goods Sold

D. Debit to Purchases

11. Which of the following is not shown in thestatement of stockholder's equity?

Select one:

A. Unearned revenue

B. Common stock

C. Retained earnings

D. Dividends

13. Using a perpetual inventory system, the sellerâsjournal entry to record the sale of merchandise on account includesa:

Select one:

A. Debit to Accounts Receivable

B. Credit to Cost of Goods Sold

C. Credit to Purchases

D. Debit to Inventory

14. A merchandising company's multi-step income statementdiffers from that of a service company in what way?

Select one:

A service company does not include a line for cost of goodssold.

A service company has a line for selling expenses whereas amerchandising company does not.

There is no difference.

A merchandising company will have a line for income fromoperations whereas a service company will not.

16.Using a perpetual inventory system, the sellerâs journalentry to record the return, by the buyer, of merchandise purchasedon account includes a:

Select one:

A. Credit to Purchase Returns

B. Debit to Cost of Goods Sold

C. Debit to Accounts Receivable

D. Debit to Sales and Allowances

20. For a firm that uses the perpetual inventory system, theSales Returns and Allowances account:

Select one:

A. Is not a contra account

B. Is not used

C. Is debited by the firm receiving returned goods from acustomer

D. Has a normal credit balance

21. Current assets are cash and other assets that will beconverted into cash or used up within:

Select one:

A. One year

B. The normal operating cycle of the business

C. The normal operating cycle of the business or one year,whichever is longer

D. The normal operating cycle of the business or one year,whichever is shorter

22. The balance sheet format that reports assets first and then,beneath the assets, reports the liabilities and stockholders'equity is called the:

Select one:

A. Account form

B. Report form

C. Stack form

D. Classified form

23. Safari Monkey Company sold $2,400,000 worth of merchandise,had $200,000 returned, and then the balance was received during the2% discount period.

What were the companyâs net sales?

Select one:

A. $1,800,000

B. $1,760,000

C. $2,156,000

D. $2,040,000