Question 1

When a company uses a perpetual inventory system, all merchandise transactions are updated as and when they occur; so, the inventory account will show the current balance at all times.

Accepted Answer

In a perpetual inventory system, inventory balances are updated continuously as merchandise transactions occur, allowing for a real-time view of the current inventory balance.

Question 2

An invoice is also known as a bill.

Accepted Answer

An invoice is a document that outlines the goods or services provided and the amount due for payment. Another term for an invoice is a bill.

Question 3

Even in a perpetual inventory system that updates the inventory account as and when transactions occur, the business must count inventory at least once in a year.

Accepted Answer

Although perpetual inventory systems continuously update inventory accounts, a physical count of inventory is still necessary to reconcile any discrepancies between the actual physical count and the recorded inventory levels. This helps ensure accuracy in the inventory account and prevent misstatement of financial statements. The frequency of physical inventory counts may vary depending on the size and complexity of the business, but at least one count per year is typically recommended.

Question 4

A purchase discount is the price offered by the purchaser for delaying the payment to the seller.

Accepted Answer

A purchase discount is the price offered by the SELLER for early payment by the purchaser, not for delaying payment.

Question 5

Hitech Inc., a small, local grocer, without optical scanning cash registers and computer systems, wants to introduce an inventory system to track its inventory. The perpetual inventory system is the most suitable for its operations.

Accepted Answer

The answer of Hitech Inc., a small, local grocer, without...

Question 6

The term "inventory," for a merchandiser, refers to:
A) raw materials that are used for production.
B) equipment that are used in production process.
C) the cost of goods sold.
D) goods held for sale to customers.

Accepted Answer

For a merchandiser, inventory refers to goods held for sale to customers. This includes the products they have in stock and available for customers to purchase. Raw materials and equipment are considered part of the company's assets but not inventory. Cost of goods sold is the expense incurred when inventory is sold, not the inventory itself.

Question 7

In a periodic inventory system, the cost of goods sold account is continuously updated as and when sales occur.

Accepted Answer

In a periodic inventory system, the cost of goods sold account is only updated at the end of the accounting period based on a physical count of the inventory. It is not continuously updated as sales occur.

Question 8

Credit terms of a merchandising company are: 1/15, net 40. This means that the buyer can avail a discount of 1 percent, if the invoice is paid within 40 days of the invoice date.

Accepted Answer

The answer of Credit terms of a merchandising company are:...

Question 9

The perpetual inventory system keeps a running record of inventory and cost of goods sold.

Accepted Answer

The perpetual inventory system does indeed keep a continuous record of inventory levels and the cost of goods sold.

Question 10

A wholesaler or a retailer needs to maintain stock to carry out its day-to-day operations. This stock is known as:
A) accounts receivable.
B) prepaid insurance.
C) merchandise inventory.
D) equipment.

Accepted Answer

The stock maintained by a wholesaler or a retailer is known as merchandise inventory. Option A (accounts receivable) is the money owed to the company by its customers, option B (prepaid insurance) is an asset account that records the amount paid for insurance coverage for future periods, and option D (equipment) is a long-term asset used to produce or sell products or services.

Question 11

A retailer purchases goods from a manufacturer and sells them to customers.

Accepted Answer

This is the basic definition of a retailer.

Question 12

The main expense of a merchandiser is:
A) cost of goods sold.
B) current assets.
C) selling and administrative cost.
D) production overheads.

Accepted Answer

The answer of The main expense of a merchandiser is:
A)...

Question 13

A wholesaler is a merchandiser who buys merchandise from a manufacturer and sells the same to a retailer.

Accepted Answer

This is the definition of a wholesaler.

Question 14

Which of the following line items will appear on the income statement of a merchandiser but not of a service company?
A) Salaries Expense
B) Depreciation Expense
C) Cost of Goods Sold
D) Supplies Inventory

Accepted Answer

Cost of Goods Sold is a direct expense that only applies to companies that sell goods or merchandise. Service companies do not have inventory or cost of goods sold. Salaries Expense and Depreciation Expense can apply to both types of companies. Supplies Inventory is an asset account and would appear on the balance sheet for both types of companies.

Question 15

Gross profit is calculated as the difference between net sales revenue and:
A) purchases.
B) cost of goods sold.
C) cost of merchandise inventory.
D) selling and administrative expenses.

Accepted Answer

Gross profit is calculated as net sales revenue minus cost of goods sold. It does not include purchases or selling and administrative expenses, and cost of merchandise inventory is only used to calculate cost of goods sold.

Question 16

Merchandise Inventory accounting systems can be broadly categorized into two. They are:
A) FIFO; LIFO
B) perpetual; periodic
C) wholesale; retail
D) manufacturer; producer

Accepted Answer

Merchandise Inventory accounting systems are broadly categorized into two: perpetual and periodic. The perpetual system continuously updates inventory balances for each purchase and sale, while the periodic system only updates inventory balances periodically, typically at the end of each accounting period. The other options listed are not relevant to inventory accounting systems.

Question 17

An entity that buys goods and sells them to customers at a markup is a:
A) merchandiser.
B) service provider.
C) manufacturer.
D) producer.

Accepted Answer

A merchandiser is an entity that buys goods from suppliers and resells them to customers at a markup. They do not manufacture the goods themselves or provide a service, but rather act as an intermediary between the supplier and the customer.

Question 18

________ are the expenses that occur in an entity's major line of business.
A) Selling expenses
B) Administrative expenses
C) Operating expenses
D) Overhead expenses

Accepted Answer

Operating expenses include all the expenditures that are necessary for the day-to-day operations of an entity's major line of business. This includes expenses like salaries, rent, utilities, inventory costs, etc. Selling expenses refer to costs related to marketing and selling products, while administrative expenses are related to general management and administration of the entity. Overhead expenses are typically indirect costs that are not directly tied to a specific product or service.

Question 19

An invoice is a request by the seller for payment from the purchaser.

Accepted Answer

An invoice is a document that itemizes a transaction between a buyer and a seller, with the seller requesting payment from the buyer for goods or services provided.

Question 20

The Gajet Store Inc. started its operations on January 1, 2015. It engages in buying and selling different types of electronic gadgets. The first step in its operating cycle would be to:
A) collect cash from customers.
B) sell goods to customers.
C) purchase inventory from vendors.
D) record the sales in accounts.

Accepted Answer

The first step in the operating cycle of a merchandising company like The Gajet Store Inc. would be to purchase inventory from vendors in order to have products to sell to customers.

Quiz 5: Merchandising Operations

When a company uses a perpetual inventory system, all merchandise transactions are updated as and when they occur; so, the inventory account will show the current balance at all times.

An invoice is also known as a bill.

Even in a perpetual inventory system that updates the inventory account as and when transactions occur, the business must count inventory at least once in a year.

A purchase discount is the price offered by the purchaser for delaying the payment to the seller.

Hitech Inc., a small, local grocer, without optical scanning cash registers and computer systems, wants to introduce an inventory system to track its inventory. The perpetual inventory system is the most suitable for its operations.

The term "inventory," for a merchandiser, refers to:

In a periodic inventory system, the cost of goods sold account is continuously updated as and when sales occur.

Credit terms of a merchandising company are: 1/15, net 40. This means that the buyer can avail a discount of 1 percent, if the invoice is paid within 40 days of the invoice date.

The perpetual inventory system keeps a running record of inventory and cost of goods sold.

A wholesaler or a retailer needs to maintain stock to carry out its day-to-day operations. This stock is known as:

A retailer purchases goods from a manufacturer and sells them to customers.

The main expense of a merchandiser is:

A wholesaler is a merchandiser who buys merchandise from a manufacturer and sells the same to a retailer.

Which of the following line items will appear on the income statement of a merchandiser but not of a service company?

Gross profit is calculated as the difference between net sales revenue and:

Merchandise Inventory accounting systems can be broadly categorized into two. They are:

An entity that buys goods and sells them to customers at a markup is a:

________ are the expenses that occur in an entity's major line of business.

An invoice is a request by the seller for payment from the purchaser.

The Gajet Store Inc. started its operations on January 1, 2015. It engages in buying and selling different types of electronic gadgets. The first step in its operating cycle would be to: