Deck 6: Special Journals and Subsidiary Ledgers: the Basics: Sales and Cash

Question 1

Credit terms of n/10, EOM means that

A) if the bill is paid by the end of the month, a discount will be granted.
B) the bill is due 10 days before the end of the month.
C) if the bill is paid 10 days after the end of the month, a discount is allowed.
D) the bill is due 10 days after the end of the month and no discount is allowed.

Answer 1

D

Question 2

Net sales equal

A) gross sales.
B) gross sales - sales returns and allowances.
C) gross sales - sales returns and allowances - sales discounts.
D) sales discounts.

Answer 2

C

Question 3

The time a customer is granted to pay the bill is the discount period.

Answer 3

False

Question 4

Customer returns of product in new condition

A) increase inventory.
B) reduce inventory.
C) reduce cost of goods sold.
D) both A and C are correct.

Question 5

Which account is used by management to keep track of possible customer dissatisfaction?

A) Sales Returns and Allowances
B) Sales Discount
C) Sales
D) Cost of Goods Sold

Question 6

Which account is not used with a perpetual inventory system?

A) Sales Returns and Allowances
B) Purchase Returns and Allowances
C) Inventory
D) Cost of Goods Sold

Question 7

The sales journal is used for

A) recording cash receipts.
B) recording purchases of merchandise.
C) recording credit sales.
D) recording cash sales.

Question 8

In a perpetual inventory system the inventory account

A) is updated after every sale.
B) is only updated at the end of period.
C) is an asset account.
D) both A and C are correct.

Question 9

The arrangements between buyer and seller as to when payments for merchandise are to be made are called

A) credit terms.
B) net cash.
C) cash on demand.
D) gross cash.

Question 10

Physical counts are not required when a perpetual inventory system is used as the inventory is perpetually up to date.

Question 11

Merchants who buy goods at distributor's prices for resale to their customers may be known as

A) merchandisers.
B) retailers.
C) distributors.
D) All of the above are correct.

Question 12

Which of the following is NOT a main type of Special Journal?

A) Sales Journal
B) Personnel Journal
C) Cash Receipts Journal
D) Cash Payments Journal

Question 13

Gross profit is

A) sales revenue less cost of goods sold.
B) sales revenue less sales returns and allowances.
C) sales revenue less inventory.
D) sales revenue less operating expenses.

Question 14

Periodic inventory systems require updating of the inventory account

A) after each sale.
B) after each purchase.
C) only at the end of a period.
D) on a daily basis.

Question 15

Returning damaged products to a supplier

A) reduces inventory.
B) increases inventory.
C) reduces cost of goods sold.
D) increases cost of goods sold.

Question 16

Credit terms of 1/10, n/30 mean that

A) 1% discount is allowed if the bill is paid within 10 days, or the entire amount is due within 30 days.
B) a discount is allowed if the bill is paid within 30 days.
C) a discount is allowed if the bill is paid after 10 days.
D) a 1% discount is allowed if the customer pays the bill within 30 days.

Question 17

Steps taken to reduce losses from credit sales do NOT include

A) Investigating each customer's credit rating.
B) Reducing the number of purchases made each month.
C) Allowing a cash discount for prompt payment.
D) Prompt follow up investigation when expected payments are not received.

Question 18

What is the gross profit if 4 units are sold for $50 each and the cost of the sale is $40 per unit?

A) $200
B) $160
C) $40
D) None of these answers are correct.

Question 19

The main reason most businesses do not use only a General Journal is

A) a General Journal is much too inefficient.
B) a General Journal is prone to many errors.
C) two or more clerks cannot use the General Journal at the same time.
D) both A and C are correct.

Question 20

Cost of goods sold is

A) total cost of inventory purchases during the period.
B) total cost of returns for the period.
C) total cost of purchases less ending inventory.
D) total cost of merchandise sold during the period.

Question 21

Gross Sales equals all the cash and credit sales made by a business for a specific period.

Question 22

Credit terms of 3/10 permit the customer to deduct 3% of the sale if payment is made within 10 days.

Question 23

The decision to allow a customer credit terms is sometimes risky.

Question 24

Terms of 2/10, n/30 means that a customer is allowed a 10% discount in 30 days.

Question 25

If cash flow is so important to merchandisers, why do they extend credit to their customers?

Question 26

Kristi's pottery sold 250 tiles at $25.00 each to a charge customer, terms 1/10, n/30. The tiles cost Kristi's $10.00 each. Which entry is required to record the sale portion of this transaction?

A) Debit Cash for $6,250; credit Tile Sales for $6,250
B) Debit Accounts Receivable for $6,187.50; credit Tile Sales for $6,187.50
C) Debit Accounts Receivable for $6,187.50; debit Sales Discount for $62.50, and credit Tile Sales for $6,250
D) Debit Accounts Receivable for $6,250; credit Tile Sales for $6,250

Question 27

Lisa's Blankets and Bedding had a sale of $375 to a charge customer, terms 1/15, n/30. Lisa should record the sale portion of this transaction as follows:

A) debit Accounts Receivable $375; credit Sales $375.
B) debit Cash $375; credit Sales $375.
C) debit Accounts Receivable $371.25; debit Sales Discounts $3.75; credit Sales $375.
D) debit Sales $375; credit Accounts Receivable $375.

Question 28

Credit terms whereby the customer is granted credit until the 10th day of the following month are n/10, EOM.

Question 29

The Payroll Journal is not considered a special journal.

Question 30

Sold merchandise on account would be recorded with

A) a debit to an asset account.
B) a debit to a liability account.
C) a debit to Capital.
D) None of these are correct.

Question 31

Accounts of a single type are kept in this ledger.

A) supplemental ledger.
B) additional ledger.
C) subsidiary ledger.
D) None of these answers are correct.

Question 32

Service companies must keep careful track of the cost of inventory.

Question 33

Kristi's pottery sold 250 tiles at $25.00 each to a charge customer, terms 1/10, n/30. The tiles cost Kristi's $10.00 each. Which entry is required to record the inventory adjustment for this transaction under a perpetual system?

A) Debit Inventory for $2,500; credit Tile Sales for $2,500
B) Debit Accounts Receivable for $2,500; credit Inventory for $2,500
C) Debit Cost of Goods Sold for $2,250; debit Purchase Discounts for $250; credit Inventory $2,500
D) Debit Cost of Goods Sold for $2,500; credit Inventory for $2,500

Question 34

Distinguish between a cash discount and a trade discount.

Question 35

Compare and discuss a discount period versus a credit period.

Question 36

The principal ledger containing all the balance sheet and income statement accounts is the

A) general ledger.
B) creditors' ledger.
C) customers' ledger.
D) subsidiary ledger.

Question 37

The sales journal is used for

A) recording cash receipts.
B) recording purchases of merchandise.
C) recording credit sales.
D) recording cash sales.

Question 38

It is a requirement that all customers have identical credit terms.

Question 39

Sales discounts are usually not an incentive for the customer to pay early.

Question 40

Credit terms remain the same from company to company.

Question 41

The purpose of the accounts receivable subsidiary ledger includes all of the following except

A) to keep a running balance of creditor's accounts.
B) to keep a running balance of each customer's account.
C) to provide supporting information for the general ledger control account.
D) to provide information to help collect the customer's account.

Question 42

An example of a subsidiary ledger is the accounts receivable ledger.

Question 43

Accounts of a single type (i.e., Accounts Receivable) are kept in this form of ledger.

A) supplemental ledger
B) additional ledger
C) subsidiary ledger
D) general ledger

Question 44

When using a subsidiary ledger, the Accounts Receivable account in the general ledger is called the

A) master account.
B) subsidiary account.
C) receivable account.
D) controlling account.

Question 45

When you record the entry to the subsidiary ledger and place the checkmark in the PR column, it is not necessary to post to the Accounts Receivable controlling account.

Question 46

When using a subsidiary ledger, the Accounts Receivable account in the general ledger is called the

A) master account.
B) subsidiary account.
C) receivable account.
D) controlling account.

Question 47

Sales is a revenue account.

Question 48

What does a check mark in the PR column of a journal indicate?

A) An amount has been posted to the general ledger.
B) During the month the subsidiary ledger is updated.
C) An amount has been posted to the controlling account.
D) Nothing has to be posted until the end of the month for this transaction.

Question 49

A special ledger for the controlling account in the general ledger would be called a subsidiary ledger.

Question 50

A special journal, like the Sales Journal, requires more posting than the general journal because the general journal has special column totals.

Question 51

Recording to the accounts receivable ledger is done

A) daily.
B) monthly.
C) bi-weekly.
D) when requested.

Question 52

Individual credit customer accounts are kept in the general ledger.

Question 53

Gross Sales equals all the cash and credit sales made by a business for a specific period.

Question 54

Which of the following statements about subsidiary ledgers is MOST accurate?

A) The subsidiary ledger accounts will never equal the control account in the general ledger.
B) The accounts receivable ledger is a book of accounts that provides supporting detail for Accounts Receivable.
C) The subsidiary ledger accounts will equal the amount in the Sales account.
D) The subsidiary ledger account will equal the amount in the sales account less sales discounts.

Question 55

The normal balance of the accounts receivable subsidiary ledger is

A) credit.
B) debit.
C) It does not have a normal balance.
D) Not enough information provided.

Question 56

Entries to customers' accounts for credit sales are posted in the

A) accounts receivable subsidiary ledger.
B) accounts payable subsidiary ledger.
C) fixed asset subsidiary ledger.
D) cash subsidiary ledger.

Question 57

When merchandise is sold on account, it is usually recorded in the

A) cash receipts journal.
B) purchases journal.
C) sales journal.
D) cash payments journal.

Question 58

A checkmark in the PR column in the general journal means

A) the entry was recorded correctly.
B) the amount was posted to the controlling account.
C) the amount was recorded in the subsidiary ledger.
D) the entry was audited.

Question 59

The controlling account is found in the subsidiary ledger and it summarizes or controls the general ledger account.

Question 60

A controlling account is a listing of all the customers and the account balances.

Question 61

A credit memorandum is sent to a customer for the purpose of

A) informing the customer an amount has been added to their account.
B) informing the customer an amount has been deducted from their account.
C) informing the customer they are terminated.
D) to inform the customer their account limit is being increased.

Question 62

The return of merchandise by a credit customer was recorded with a debit to Accounts Payable and a credit to Accounts Receivable and the subsidiary ledger. This error will cause

A) the net income for the period to be overstated.
B) the net income for the period to be understated.
C) the control account to not agree with the subsidiary ledger.
D) the assets to be overstated.

Question 63

Fruit & Company sells fruit in large quantities on account, uses a perpetual inventory system and a sales journal. Standard terms of sale are 2/10, n/30. Record the following transactions for the month of April, 2020 in the journal provided. Total the columns for the month.
Transactions:
April 2 Sold $300 of Apples and $500 of Oranges to ABC Company, cost $640.
April 5 Sold $400 of Apples, $600 of Bananas plus $700 of Oranges to WMS Company, cost $1,445.
April 10 Sold $200 of Apples plus $800 of Bananas to XYZ Company, cost $790.
April 14 Sold $350 of Apples, $450 of Bananas plus $300 of Oranges to WMS Company, cost $935.
April 21 Sold $150 of Apples and $750 of Oranges to ABC Company, cost $788.
April 23 Sold $600 of Bananas plus $700 of Oranges to XYZ Company, cost $1105.
April 28 Sold $800 of Apples, $500 of Bananas plus $900 of Oranges to WMS Company, cost $1,870.
Here is the Sales Journal for April, 2020:
Account Accts. Rec., Dr. Cost of Goods Sold, Dr.
Date Debited Terms Sales, Cr. Inventory, Cr.
________ ________ ________ ________ ________
________ ________ ________ ________ ________
________ ________ ________ ________ ________
________ ________ ________ ________ ________
________ ________ ________ ________ ________
________ ________ ________ ________ ________
________ ________ ________ ________ ________
________ ________ ________ ________ ________
________ ________ ________ ________ ________

Question 64

If a credit memorandum is issued, what account will be increased on the seller's books?

A) Accounts Receivable
B) Accounts Payable
C) Sales Discount
D) Sales Returns and Allowances

Question 65

Refer to the Fruit & Company question above. What amount would the ABC Company owe at month end, assuming no payments were received?

Question 66

Refer to the Fruit & Company question above. What amount would be debited to the AR control account for the month?

Question 67

Refer to the Fruit & Company question above. What amount would the WMS Company owe at month end, assuming no payments were received?

Question 68

Refer to the Fruit & Company question above. What is the Gross Profit for the month?

Question 69

A characteristic of Sales Returns and Allowances is that

A) it has a debit balance.
B) it tracks returns from customers.
C) it is a contra-revenue account.
D) All of these answers are correct.

Question 70

Refer to the Fruit & Company question above. What amount would the XYZ Company owe at month end, assuming no payments were received?

Question 71

Recording to the accounts receivable ledger should be performed at the end of the month.

Question 72

Refer to the Fruit & Company question. What is the amount debited to Cost of Goods Sold for the month?

Question 73

A customer returned merchandise having already paid for it within the cash discount period. The return will be recorded with

A) a credit to an asset account.
B) a credit to a liability account.
C) a credit to Capital.
D) None of these are correct.

Question 74

Define and compare the accounts receivable subsidiary ledger with the controlling account, Accounts Receivable.

Question 75

Which account is used by management to keep track of possible customer dissatisfaction?

A) Sales Returns and Allowances
B) Sales Discount
C) Sales
D) Cost of Goods Sold

Question 76

If a credit memorandum is issued, what account will be decreased on the seller's books?

A) Accounts Receivable
B) Accounts Payable
C) Sales Discount
D) Sales Returns and Allowances

Question 77

A checkmark is placed in the PR column to show an amount has been posted to a subsidiary account.

Question 78

Refer to the previous question. What is the amount credited to Sales for the month?

Question 79

Refer to the Fruit & Company question. What is the amount credited to Inventory for the month?

Question 80

A customer returned merchandise for credit. This will be recorded with

A) a credit to a liability account.
B) a debit to a liability account.
C) a credit to an asset account.
D) None of these are correct.