Question 1

The Sales Returns and Allowances account is classified as
A) an asset account.
B) a contra asset account.
C) an expense account.
D) a contra revenue account.

Accepted Answer

The Sales Returns and Allowances account is a contra revenue account because it is used to offset the amount of revenue earned from sales. This account is used to record any returns, refunds or allowances granted to customers, which reduces the total amount of revenue earned from sales. Therefore, option D is the correct answer.

Question 2

If a firm had sales of $50,000 during a period and sales returns and allowances of $4,000,its net sales were
A) $54,000.
B) $50,000.
C) $46,000.
D) $4,000.

Accepted Answer

Net sales are calculated by subtracting sales returns and allowances from total sales. Therefore, the net sales for this firm would be $46,000 ($50,000 - $4,000).

Question 3

A retailer recorded the following in June: cash sales $2,000;credit sales,$9,000;sales returns and allowances,$1,000.Assuming the sales tax rate is 7 percent,the entry to record the sales tax payment includes a debit to Sales Tax Payable for
A) $560.
B) $630.
C) $700.
D) $770.

Accepted Answer

The answer of A retailer recorded the following in June:...

Question 4

The entry to record a return by a credit customer of defective merchandise on which no sales tax was charged includes
A) a debit to Sales and a credit to Accounts Receivable.
B) a debit to Sales and a credit to Sales Returns and Allowances.
C) a debit to Sales Returns and Allowances and a credit to Accounts Receivable.
D) a debit to Accounts Receivable and a credit to Sales Returns and Allowances.

Accepted Answer

When a credit customer returns defective merchandise on which no sales tax was charged, the entry should include a debit to Sales Returns and Allowances and a credit to Accounts Receivable. This is because Sales Returns and Allowances is a contra account to Sales, and it is used to record the return of defective merchandise. A debit to Sales would imply that the merchandise was sold initially, which is incorrect. Similarly, a debit to Accounts Receivable would imply that the customer still owes money for the defective merchandise, which is not the case.

Question 5

An example of a merchandising company is a
A) bookstore.
B) restaurant.
C) hair salon.
D) real estate office.

Accepted Answer

A merchandising company typically sells tangible products to consumers, which is the case for a bookstore that sells books, magazines, and other reading materials. The other choices (restaurant, hair salon, real estate office) do not primarily sell tangible products and are therefore not considered merchandising companies.

Question 6

Hour Place Clock Shop sold a grandfather clock for $2,250 subject to a 9% sales tax.The entry in the sales journal will include a debit to Accounts Receivable for
A) $2,250.00.
B) $2,092.50.
C) $2,452.50.
D) $2,362.00.

Accepted Answer

The total amount paid by the customer, including sales tax, is:
$2,250 + ($2,250 x 0.09) = $2,452.50

Therefore, the Accounts Receivable account should be debited for $2,452.50.

Question 7

A wholesale business sells goods with a list price of $900 and a trade discount of 40 percent.The net price is
A) $360.00.
B) $540.00.
C) $900.00.
D) $940.00.

Accepted Answer

The trade discount of 40% means that the customer will receive a 40% reduction on the list price of $900.

40% of $900 = 0.40 x $900 = $360

So, the net price (price after the trade discount) will be:

List price - Trade discount 
$900 - $360 = $540

Therefore, the net price of the goods is $540, which is option B.

Question 8

Hugh Snow returned merchandise to Farley Co.The entry on the books of Farley company to record the return of merchandise from Hugh Snow would include a:
A) Debit Accounts Payable
B) Credit to Purchase Returns and Allowances
C) Debit to Account Receivable
D) Debit Sales Returns and Allowances

Accepted Answer

When merchandise is returned by a customer, the company records a debit to Sales Returns and Allowances to reduce sales revenue and reflect the return.

Question 9

Hour Place Clock Shop sold a grandfather clock for $2,250 subject to a 9% sales tax.The entry in the sales journal will include a credit to Sales for
A) $2,250.00.
B) $2,092.50.
C) $2,452.50.
D) $2,362.00.

Accepted Answer

The sales journal entry will include a credit to Sales for the pre-tax amount of the sale, which is $2,250. The sales tax is recorded separately.

Question 10

On Deck Sports Memorabilia store sells a Babe Ruth rookie card for $4,600 on account.If the sales tax on the sale is 8%,what is the amount debited to Accounts Receivable.
A) $4,232
B) $4,968
C) $4,600
D) $4,592

Accepted Answer

The amount debited to Accounts Receivable includes the sale price plus sales tax: $4,600 + ($4,600 * 0.08) = $4,968.

Question 11

ABC Skiing Essentials uses special journals.If a credit customer returns $8,000 of goods on which $560 of sales tax was charged,select the correct entry to record the return:
A)

B)

C)

D)

Accepted Answer

The answer of ABC Skiing Essentials uses special journals.If a...

Question 12

Which of the following describes Sales Tax Payable?
A) A revenue account with a normal credit balance.
B) A liability account with a normal debit balance.
C) A liability account with a normal credit balance.
D) An asset account with a normal debit balance.

Accepted Answer

Sales Tax Payable is a liability account that represents the amount of sales tax collected from customers that is owed to the government, and it has a normal credit balance.

Question 13

The Sales Returns and Allowances account is presented
A) on the balance sheet as a deduction from Accounts Receivable.
B) on the income statement as a deduction from Sales.
C) on the income statement as an addition to Sales.
D) on the balance sheet as a deduction from Capital.

Accepted Answer

The Sales Returns and Allowances account is used to track any returned merchandise or customer allowances that reduce the amount of revenue earned from sales. As a result, it is presented on the income statement as a deduction from Sales, which reflects the net amount of revenue earned after returns and allowances are taken into account.

Question 14

A wholesale firm made sales with a list price of $1,500 and trade discounts of 25 and 15 percent.Calculate the amount the firm will use to record the sale in the sales journal.
A) Invoice price will be equal to $956.25
B) Invoice price will be equal to $900
C) Invoice price will be equal to $600
D) Invoice price will be equal to $543.75

Accepted Answer

The invoice price is calculated by applying the trade discounts sequentially: $1,500 - 25% = $1,125, then $1,125 - 15% = $956.25.

Question 15

If a firm does not have a sales returns and allowances journal,the entries for these transactions are made in
A) the sales journal.
B) the general journal.
C) the cash receipts journal.
D) the cash payments journal.

Accepted Answer

Sales returns and allowances are typically material enough transactions to merit their own journal, but if a firm doesn't have one, these entries should be made in the general journal.

Question 16

Ables Budget Boutique uses special journals.If a credit customer returns $40 of goods on which $3 of sales tax was charged,identify the statement below that would be correct when posting the transaction.
A) A debit of $43 would be posted to the customer's account in the accounts receivable ledger.
B) A debit of $40 would be posted to the customer's account in the accounts receivable ledger.
C) A credit of $40 would be posted to the customer's account in the accounts receivable ledger.
D) A credit of $43 would be posted to the customer's account in the accounts receivable ledger.

Accepted Answer

The answer of Ables Budget Boutique uses special journals.If a...

Question 17

On the Income Statement,Sales Returns and Allowances have the effect of
A) increasing total revenue.
B) increasing total expenses.
C) decreasing total revenue.
D) decreasing total expenses.

Accepted Answer

Sales Returns and Allowances represent a reduction in the total amount of revenue earned from sales. Therefore, it decreases total revenue.

Question 18

The amount used by wholesalers to record sales in its sales journal is
A) the retail price.
B) the list price.
C) the net price.
D) the original price.

Accepted Answer

Wholesalers typically record sales in their sales journal at the net price, which is the price after any applicable discounts or allowances have been subtracted. This allows wholesalers to accurately track their revenue and cost of goods sold.

Question 19

After all postings have been made,the total of the schedule of accounts receivable should equal
A) the balance of the Sales account.
B) the total of the Accounts Receivable Debit column in the sales journal.
C) the balance of the Accounts Receivable account in the general ledger.
D) the total of all sales on account for the accounting period.

Accepted Answer

The schedule of accounts receivable lists all customers who owe the business money and the total amount owed by each customer. As each sale on account is posted to the customer's account in the sales journal, the accounts receivable balance in the general ledger is updated. Therefore, the total of the schedule of accounts receivable should equal the balance of the Accounts Receivable account in the general ledger, as this represents the total amount owed by all customers at the end of the accounting period. Options A, B, and D are not accurate because they do not reflect the total amount owed by all customers, but rather only partial amounts or sales for the period.

Question 20

GiGi's Sporting Goods uses special journals.If a credit customer returns $400 of goods on which $24 of sales tax was charged,the journal entry to record the return would include:
A) a debit to the Sales account for $424.
B) a credit to the Sales Tax Payable account for $24.
C) a debit to the Sales Returns and Allowances account for $400.
D) a credit to the Accounts Receivable account for $400.

Accepted Answer

The journal entry to record the return would include a debit to the Sales Returns and Allowances account for $400, as the goods are being returned by the customer. There is no need to include a debit to the Sales account, as the sale has been reversed due to the return. There is also no need to credit the Sales Tax Payable account as the tax was already accounted for in the original sale. The Accounts Receivable account should be credited for $400 to reflect that the customer no longer owes that amount, but this option is not listed as a choice.

Quiz 7: Accounting for Sales and Accounts Receivable

The Sales Returns and Allowances account is classified as

If a firm had sales of $50,000 during a period and sales returns and allowances of $4,000,its net sales were

A retailer recorded the following in June: cash sales $2,000;credit sales,$9,000;sales returns and allowances,$1,000.Assuming the sales tax rate is 7 percent,the entry to record the sales tax payment includes a debit to Sales Tax Payable for

The entry to record a return by a credit customer of defective merchandise on which no sales tax was charged includes

An example of a merchandising company is a

Hour Place Clock Shop sold a grandfather clock for $2,250 subject to a 9% sales tax.The entry in the sales journal will include a debit to Accounts Receivable for

A wholesale business sells goods with a list price of $900 and a trade discount of 40 percent.The net price is

Hugh Snow returned merchandise to Farley Co.The entry on the books of Farley company to record the return of merchandise from Hugh Snow would include a:

Hour Place Clock Shop sold a grandfather clock for $2,250 subject to a 9% sales tax.The entry in the sales journal will include a credit to Sales for

On Deck Sports Memorabilia store sells a Babe Ruth rookie card for $4,600 on account.If the sales tax on the sale is 8%,what is the amount debited to Accounts Receivable.

ABC Skiing Essentials uses special journals.If a credit customer returns $8,000 of goods on which $560 of sales tax was charged,select the correct entry to record the return:

Which of the following describes Sales Tax Payable?

The Sales Returns and Allowances account is presented

A wholesale firm made sales with a list price of $1,500 and trade discounts of 25 and 15 percent.Calculate the amount the firm will use to record the sale in the sales journal.

If a firm does not have a sales returns and allowances journal,the entries for these transactions are made in

Ables Budget Boutique uses special journals.If a credit customer returns $40 of goods on which $3 of sales tax was charged,identify the statement below that would be correct when posting the transaction.

On the Income Statement,Sales Returns and Allowances have the effect of

The amount used by wholesalers to record sales in its sales journal is

After all postings have been made,the total of the schedule of accounts receivable should equal

GiGi's Sporting Goods uses special journals.If a credit customer returns $400 of goods on which $24 of sales tax was charged,the journal entry to record the return would include: