Question 1

In a perpetual inventory system, the merchandise inventory account must be closed at the end of the accounting period.

Accepted Answer

In a perpetual inventory system, the merchandise inventory account is not closed at the end of the accounting period. Instead, the account is continuously updated throughout the period as inventory is bought and sold. Ending inventory is then used to calculate the cost of goods sold for the period.

Question 2

Cost of Goods Sold is debited to close the account during the closing process.

Accepted Answer

The answer of Cost of Goods Sold is debited to...

Question 3

A single-step income statement includes cost of goods sold as another expense, and shows only one subtotal for total expenses.

Accepted Answer

A single-step income statement groups all expenses together in one category, which includes cost of goods sold along with other expenses. There is only one subtotal for total expenses, which is subtracted from total revenue to arrive at net income.

Question 4

Sales discounts on credit sales can benefit a seller by decreasing the delay in receiving cash and reducing future collections efforts.

Accepted Answer

Sales discounts incentivize customers to pay earlier, reducing the amount of time the seller has to wait to receive the cash. This can also reduce the need for future collection efforts since customers are more likely to pay on time or early with the incentive of a discount.

Question 5

A credit memorandum from a seller informs a buyer of the seller's credit to its Accounts Payable account arising from a sales return or allowance.

Accepted Answer

A credit memorandum from a seller informs a buyer of the seller's credit to the buyer's Accounts Receivable account, not Accounts Payable, arising from a sales return or allowance.

Question 6

When a company has no reportable nonoperating activities, its income from operations is simply labeled net income.

Accepted Answer

If a company has no reportable nonoperating activities, its income from operations is the same as its net income.

Question 7

Sales of $350,000 and net sales of $323,000 could reflect sales discounts of $27,000.
$350,000 - $323,000 = $27,000

Accepted Answer

This is correct because sales discounts are deducted from gross sales to arrive at net sales. Therefore, if net sales are $27,000 less than gross sales, then it can be assumed that $27,000 worth of discounts were applied.

Question 8

Sales Discounts and Sales Returns and Allowances are credited to close the accounts during the closing process.

Accepted Answer

Both Sales Discounts and Sales Returns and Allowances are contra-revenue accounts and have a debit balance. Therefore, they need to be credited to close the accounts during the closing process.

Question 9

A journal entry with a debit to cash of $980, a debit to Sales Discounts of $20, and a credit to Accounts Receivable of $1,000 means that a customer has taken a 10% cash discount for early payment.
$20/$1,000 = 2% discount

Accepted Answer

The journal entry indicates a 2% discount, not a 10% discount, as $20 is 2% of $1,000.

Question 10

Because sellers assume that their customers will pay within the discount period, the seller usually records the discount at the time of the sale.

Accepted Answer

Sellers typically record sales at the gross amount and only record the discount if the customer pays within the discount period, as it is not guaranteed that all customers will take advantage of the discount.

Question 11

Operating expenses are classified into two categories: selling expenses and cost of goods sold.

Accepted Answer

Operating expenses are classified into three categories: selling expenses, general and administrative expenses, and depreciation and amortization expenses. Cost of goods sold is not an operating expense, but rather a direct expense associated with the production of goods.

Question 12

A perpetual inventory system is able to directly measure and monitor inventory shrinkage and there is no need for a physical count of inventory.

Accepted Answer

The answer of A perpetual inventory system is able to...

Question 13

A merchandiser's classified balance sheet reports merchandise inventory as a current asset.

Accepted Answer

Merchandise inventory is a current asset because it is available for sale within the normal operating cycle of the business.

Question 14

The adjusting entry to reflect inventory shrinkage is a debit to Income Summary and a credit to Inventory Shrinkage Expense.

Accepted Answer

The answer of The adjusting entry to reflect inventory shrinkage...

Question 15

Selling expenses support a company's overall operations and include expenses related to accounting, human resource management, and financial management.

Accepted Answer

Selling expenses are related to sales activities such as advertising and sales commissions, not general operational expenses related to accounting, HR, and finance.

Question 16

FOB shipping point (or FOB factory) implies that ownership of goods transfers to the buyer at the buyer's place of business.

Accepted Answer

FOB shipping point (or FOB factory) implies that ownership of goods transfers to the buyer at the moment the goods are loaded onto the carrier at the seller's place of business. This means the buyer bears the risk of loss or damage during transportation and is responsible for any related costs.

Question 17

Each sales transaction for a seller that uses a perpetual inventory system involves recognizing both revenue and cost of merchandise sold.

Accepted Answer

In a perpetual inventory system, the cost of merchandise sold is recognized at the time of sale, along with the revenue earned from the sale.

Question 18

A multiple-step income statement format shows detailed computations of net sales and other costs and expenses, and reports subtotals for various classes of items.

Accepted Answer

A multiple-step income statement format does show detailed computations of net sales and other costs and expenses, and reports subtotals for various classes of items.

Question 19

When a credit customer returns merchandise to the seller, under a perpetual inventory system, the seller would debit Sales Returns and Allowances and credit Accounts Receivable and also debit Merchandise Inventory and credit Cost of Goods Sold.

Accepted Answer

This is correct. When a credit customer returns merchandise, the seller needs to adjust their sales revenue and inventory cost. Therefore, the seller would debit Sales Returns and Allowances and credit Accounts Receivable to reflect the decrease in sales revenue due to the return. Additionally, the seller would debit Merchandise Inventory and credit Cost of Goods Sold to reverse the original inventory cost and COGS recognition from the initial sale.

Question 20

Sales discounts is a contra revenue account, meaning that the Sales Discounts account is added to the Sales account when computing a company's net sales.

Accepted Answer

Sales discounts is a contra revenue account, meaning it is subtracted from the Sales account when computing a company's net sales, not added.

Quiz 5: Accounting for Merchandising Operations