Exam (elaborations)
ACG 2021 Exam -2 (1)
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ACG 2021 Exam -2 (1)
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ACG 2021 Exam #2What is a merchandise business? - ANS-A merchandising business sells goods (not services)
When does a purchase return occur? - ANS-When the buyer is not satisfied with the product
and decides to send it back.
When does a purchase allowance occur? - ANS-When a discount is provided to the buyer as an
incentive to keep the product instead of returning it.
What is 3/10, n/30 - ANS-Its a purchase discount formula. It stands for:
3% discount its given if the purchaser pays within the first 10 days. If not the full amount is due
in 30 days.
What is 1/10 EOM? - ANS-It means that 1% discount will be given if payment is made with in
the first 10 days of the next month.
n/30? - ANS-No discount. Buyer must pay full price within 30 days.
n/60? - ANS-No discount. Buyers must pay full price within 60 days.
n/15 EOM? - ANS-No discount. Buyer must pay full price within the first 15 days of the next
month.
What is FOB Shipping point? - ANS-The Buyer is responsible for the shipping cost. They add
this cost to inventory.
What is FOB destination? - ANS-The Seller is responsible for the shipping cost. They add the
cost to a Shipping expense account or freight-out account.
Buyer perspective on Inventory: - ANS-Beg Balance
- Return
-Discount
-Allowances
+Shipping (Freight-in)
=Ending Inventory Balance
When handling transactions from the Buyers perspective what account its mostly used? -
ANS-Inventory
When handling accounts from sellers perspectives what accounts are mostly used? -
ANS-Contra accounts.
, 1. Sales Return and Allowances
2. Sales discount
How are sale return accounted for? - ANS-The contra revenue account, Sales Return and
Allowances must be Debited.
How are sale discounts accounted for? - ANS-The contra-revenue account Sales Discount must
be Debited.
How do we account for a SELLER'S shipping charges? - ANS-We must debit the expense
account Shipping/Freight out
Sellers perspective? - ANS-Gross Sales
-No Shipping because its own expense category
-Sales Returns
-Sale Discounts
-Sales Allowances
=Net Sales
What is a single step income statement? - ANS-Revenues- Expenses= Net Income
What is included in the multi-step income statement that its not included in the single-step? -
ANS-Gross profit, Income from Operations, and Net Income
What are the components of the multi-step income statement? - ANS-Gross Sales Revenues
-Sales Returns and Allowances
-Sales Discounts
=Net Sales
-COGS Expense
=Gross Profit/ Margin
-Operating Expense
=Income from Operations
-Non Operating Activities
-Gains/Loses
=Net Income
How to calculate Net Sales? - ANS-Gross Sales Revenue-Contra-Revenue Accounts =Net
Sales
How to calculate Gross Profit/Margin? - ANS-Net Sales- COGS Expense =Gross Profit/ Margin
How to calculate Income from Operations? - ANS-G.P/Margin-Operating Expense=Income from
Operations
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