Perpetual inventory system - ANSWERSEach purchase and sale of merchandise is recorded in the inventory account and related subsidiary ledger.
The amount (cost) of merchandise inventory on hand is continuously (perpetually) updated in the inventory records.
Cost of Goods Sold account is kept ...
Financial Accounting Exam 3 (SBU
Wagner) Questions & Answers
Perpetual inventory system - ANSWERSEach purchase and sale of merchandise is
recorded in the inventory account and related subsidiary ledger.
The amount (cost) of merchandise inventory on hand is continuously (perpetually)
updated in the inventory records.
Cost of Goods Sold account is kept up to date as well.
Periodic inventory system - ANSWERSThe inventory account is not updated during the
period.
There is no Cost of Goods Sold Account
There is no Cost of Goods Sold Account
A physical inventory, is prepared at the end of the accounting period.
Physical inventory - ANSWERSused to determine the cost of inventory on hand at the
end of the period and calculate the cost of goods sold during the period.
count of inventory should be taken near year-end to make sure that the quantity of
inventory reported in the financial statements is accurate.
Differences between Service vs Retail businesses - ANSWERSService Business
Fees Earned + Op Ex = Op Income
Retail/ Merch Business
Sales - COGS = Gross Profit - Op Ex = Net Income
What type of account is Inventory? - ANSWERSAsset
norm. bal. +/-
What type of account is sales? - ANSWERSRevenue
norm. bal. -/+
What type of account is Cost of Goods Sold? - ANSWERSExpense
norm. bal. +/-
Cash purchases of merchandise - ANSWERSDr Inventory
Cr Cash
, Purchases of inventory on account - ANSWERSDr Inventory
Cr Accounts Payable
invoice - ANSWERSWhere terms of purchases on account are normally indicated or bill
that the seller sends the buyer.
Credit terms - ANSWERSindicate when payments for merchandise are due.
If payment is required on delivery, the terms are cash or net cash.
Otherwise, the buyer is allowed an amount of time, known as the *credit period*, in
which to pay.
Purchases discounts - ANSWERSDiscounts taken by the buyer for early payment of an
invoice
reduce the cost of the merchandise purchased
2/10, n/30 - ANSWERS"Two ten, net thirty"
A seller may offer a 2% discount if the buyer pays within 10 days of the invoice date. If
the buyer does not take the discount, the total invoice amount is due within 30 days.
Purchases returns and allowances - ANSWERSA buyer may request an allowance for
merchandise that is returned (purchases return) or a price allowance (purchases
allowance) for damaged or defective merchandise.
The buyer normally sends the seller a *debit memo* to notify the seller of reasons for
the return (purchase return) or to request a price reduction (purchase allowance).
Debit Memo - ANSWERSinforms the seller of the amount the buyer proposes to debit to
the account payable due the seller and states the reasons for the return or the request
for the price allowance.
Net method - ANSWERSSince buyers normally take all purchases discounts, Inventory
is debited for the net purchase price under the perpetual inventory system.
The buyer debits Inventory for the amount of the invoice less the discount.
Revenue from merchandise sales is usually recorded as - ANSWERSSales or Sales
Revenue
Assume that on March 3, NetSolutions sells merchandise for $1,800. - ANSWERS
Assume that the cost of goods sold on March 3 is $1,200. - ANSWERS
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