Deck 11: Accounting for Purchases and Cash Payments

Question 1

Purchases Returns and Allowances is the contra-purchases account to which purchases returns and purchases allowances are credited.

Answer 1

True

Question 2

Trade discounts represent a reduction in the price of the merchandise and should not be entered in the accounts of either the seller or the buyer.

Answer 2

True

Question 3

Merchandise inventory at the beginning of the period minus purchases plus merchandise inventory at the end of the period equals cost of goods sold for the period.

Answer 3

False

Question 4

Major documents used in the purchasing process are the purchase requisition, purchase order, receiving report, and sales invoice.

Question 5

A written order by a buyer for merchandise or other property specified in a purchase requisition is known as a purchase invoice.

Question 6

The purchases discounts account is debited for cash discounts to customers.

Question 7

A source document prepared by the seller that lists the items shipped, their cost, and the method of shipment is commonly referred to by the seller as a purchase invoice.

Question 8

In entering in the books an invoice that involves a trade discount, the amount to be used is the net amount after the trade discount is subtracted.

Question 9

FOB destination means free on board at the destination of the shipment.

Question 10

Freight-In is an adjunct-purchases account to which transportation charges on merchandise purchases are debited.

Question 11

FOB shipping point means free on board at destination of the shipment.

Question 12

If the merchandise received is damaged or unsatisfactory, an adjustment may be made that is referred to as an allowance.

Question 13

The first document created in the purchasing process normally is the purchase requisition.

Question 14

Postings to the accounts payable ledger should be made at the end of the month only.

Question 15

For merchandising businesses, the term "purchases" refers only to merchandise acquired for resale.

Question 16

Special discounts on list prices granted to different classes of customers are known as trade discounts.

Question 17

When the merchandise is received, a receiving report indicating what has been received is prepared.

Question 18

A schedule of accounts payable is used to prove that the sum of the accounts payable ledger balances equals the Accounts Payable balance in the general ledger.

Question 19

A trade discount is often offered by wholesalers.

Question 20

The supplier or vendor is the person or firm from whom the merchandise or other property is ordered.

Question 21

If the terms specified on an invoice are 2/10, n/30, this means that a discount of 2% will be allowed if payment is made within 30 days from the date of the invoice.

Question 22

If the terms of an invoice dated April 10 are 3/10, n/30, the invoice must be paid on or before April 20 in order to be entitled to a discount.

Question 23

An invoice is never subject to both trade and cash discounts.

Question 24

Discounts from quoted prices which are contingent on prompt payment of invoices, within a stated discount period, are called cash discounts.

Question 25

Special discounts from list prices, granted by manufacturers to different classes of customers, are known as

A) cash discounts.
B) trade discounts.
C) manufacturers' discount.
D) customers' discounts.

Question 26

Gross profit is a measure of the amount of sales dollars available to cover expenses after covering the cost of the goods sold.

Question 27

(Appendix) If purchases are recorded at the net amount, assuming that all available cash discounts will be taken, the net-price method of recording the purchase has been used.

Question 28

Purchases Discounts is a contra-purchases account used to record cash discounts allowed on purchases.

Question 29

After the posting of the accounts payable ledger and the general ledger is completed, the total of the accounts payable ledger balances should equal the Accounts Payable balance in the general ledger.

Question 30

A schedule of accounts payable is prepared from the list of accounts in the accounts receivable ledger.

Question 31

A source document prepared by the seller that lists the items shipped, their cost, and the method of shipment is commonly referred to by the seller as the

A) sales invoice.
B) purchase invoice.
C) receiving report.
D) purchase requisition.

Question 32

(Appendix) The purchases discounts lost account is only used with the gross-price method of recording purchases.

Question 33

The first step in the purchasing process involves preparing a purchase order.

Question 34

Purchases Returns and Allowances is a contra-purchases account.

Question 35

A written order by a buyer for merchandise or other property specified in a purchase requisition is known as a

A) purchase invoice.
B) purchase order.
C) purchase requisition.
D) receiving report.

Question 36

A form used to request the purchasing department to purchase merchandise or other property is known as a purchase order.

Question 37

An account number in the Posting Reference column of the general journal indicates that the account has been posted to the general ledger.

Question 38

Assume the gross amount of an invoice is $200 and a trade discount of 10% is allowed. The amount to be entered in the accounting records would be

A) $20.
B) $220.
C) $200.
D) $180.

Question 39

Assume the gross amount of an invoice is $200 and a discount of 20% is allowed. The amount of the trade discount totals

A) $20.
B) $65.
C) $40.
D) $80.

Question 40

A printed price of a manufacturer or wholesaler that is subject to trade discounts is called

A) net price.
B) gross price.
C) list price.
D) retail price.

Question 41

Merchandise inventory available at the beginning of the period plus cost of goods purchased minus merchandise inventory at the end of the period equals

A) purchases.
B) cost of goods sold.
C) purchases returns and allowances.
D) net purchases.

Question 42

A list showing the amount due to each supplier as of a specified date is known as the

A) schedule of accounts receivable.
B) trial balance.
C) balance sheet.
D) schedule of accounts payable.

Question 43

The terms on an invoice are 4/15, n/30. This means that

A) a discount of 4% will be allowed if payment is made within 15 days from the date of the invoice.
B) a discount of 15% will be allowed if payment is made with 4 days from the date of the invoice.
C) a discount of 4% will be allowed if payment is made by the 15^th of the month.
D) a discount of 15% will be allowed if payment is made by the 4^th day after the date of the invoice.

Question 44

Which of the following indicates that a shipment is free on board at the destination of the shipment and the seller will pay the transportation costs?

A) COD
B) FOB shipping point
C) FOB destination
D) 4/10, EOM

Question 45

A record used to keep the amount owed to each supplier is called a(n)

A) accounts receivable ledger.
B) accounts payable ledger.
C) transportation ledger.
D) general ledger for accounts payable.

Question 46

An invoice in the amount of $916 is subject to a trade discount of 10% and credit terms of 3/10, n/30. The amount of the trade discount would be

A) $24.73.
B) $27.48.
C) $91.60.
D) $824.40.

Question 47

After the posting of the accounts payable ledger is completed, the total of the accounts payable ledger balances should equal the balance of which of the following general ledger accounts?

A) Purchases
B) Accounts Receivable
C) Accounts Payable
D) Purchases Returns and Allowances

Question 48

An invoice of $237.50 dated April 2 is subject to credit terms of 2/10, n/30. The amount to be paid if the invoice is paid on or before April 12 is

A) $4.75.
B) $23.75.
C) $232.75.
D) $237.50.

Question 49

The account to which transportation charges on incoming merchandise are generally entered is

A) Freight-In.
B) FOB-In.
C) Freight-Out.
D) Delivery-In.

Question 50

An invoice in the amount of $916 is subject to a trade discount of 10% and credit terms on 3/10, n/30. If the invoice is not paid within the discount period, the amount that would be paid to satisfy the invoice would be

A) $824.40.
B) $888.52.
C) $981.27.
D) $916.00.

Question 51

The cost of merchandise purchased during the period less any discounts granted by suppliers and amounts returned to suppliers and amounts of any allowances made by suppliers is called

A) purchases.
B) net purchases.
C) purchases returns and allowances.
D) cost of goods sold.

Question 52

Assume the gross amount of an invoice is $100 and a discount of 20% is allowed. The net amount is

A) $65.
B) $80.
C) $20.
D) $40.

Question 53

An invoice of $237.50 dated April 2 is subject to credit terms of 2/10, n/30. If the invoice is paid on April 14, the amount to be paid would be

A) $4.75.
B) $23.75.
C) $232.75.
D) $237.50.

Question 54

Which of the following credit terms allows a discount of 2% if payment is made within 10 days with the total amount of the invoice due within 60 days?

A) 2/10, n/30
B) 2/10, EOM/60
C) 10/2, n/60
D) 2/10, n/60

Question 55

A discount offered as an inducement for prompt payment of an invoice is called a(n)

A) trade discount.
B) invoice discount.
C) early discount.
D) cash discount.

Question 56

(Appendix) When the net-price method of recording purchases is used, the debit to Purchases is for the

A) full amount of the invoice.
B) amount of the invoice less available cash discounts.
C) amount actually paid on the invoice.
D) amount of the invoice plus available cash discounts.

Question 57

A form used to request the responsible person or department to purchase merchandise or other property is known as a

A) purchase invoice.
B) receiving report.
C) purchase requisition.
D) purchase order.

Question 58

Which of the following indicates that the shipment is free on board at the final point of shipment and the seller must pay all transportation costs?

A) COD
B) FOB shipping point
C) FOB destination
D) 4/10, EOM

Question 59

Which of the following credit terms allows a discount of 3% if payment is made within 15 days from the date of the invoice; otherwise, the total amount of the invoice must be paid within 30 days from its date?

A) 3/15, EOM
B) 3/EOM, n/30
C) 3/15, n/30
D) 15/3, n/30

Question 60

The entry to record the purchase on account of merchandise for resale under the periodic inventory system includes

A) debiting Purchases and crediting Cash.
B) debiting Purchases and crediting Accounts Payable.
C) debiting Merchandise Inventory and crediting Cash.
D) debiting Merchandise Inventory and crediting Accounts Payable.

Question 61

Match the terms with the definitions.a.accounts payable ledger
b.cost of goods sold
c.FOB destination
d.FOB shipping point
e.gross profit
f.purchase invoice
g.purchase order
h.purchase requisition
i.purchases
j.receiving report
k.schedule of accounts payable
l.trade discount
The difference between net sales and cost of goods sold.

Question 62

Match the terms with the definitions.a.accounts payable ledger
b.cost of goods sold
c.FOB destination
d.FOB shipping point
e.gross profit
f.purchase invoice
g.purchase order
h.purchase requisition
i.purchases
j.receiving report
k.schedule of accounts payable
l.trade discount
A written order to buy goods from a specific vendor (supplier).

Question 63

(Appendix) A purchase was made for $200 on account with credit terms of 2/10, n/30. The purchase was recorded using the net-price method. If payment is made 25 days later, the entry to record the payment will be to

A) debit Accounts Payable for $200 and credit Cash for $200.
B) debit Accounts Payable for $204, credit Purchases Discounts Lost for $4, and credit Cash for $200.
C) debit Accounts Payable for $196, debit Purchases Discounts Lost for $4, and credit Cash for $200.
D) debit Purchases for $196, debit Purchases Discounts Lost for $4, and credit Cash for $200.

Question 64

Using the following information, determine the (a) cost of goods sold (show your work) and (b) gross profit.

Question 65

Tim Simpleton owns a variety store called Tiny Tim Center. Journalize the following purchases of inventory, returns, and discounts for the month of November. Use the gross-price method.

Question 66

Match the terms with the definitions.a.accounts payable ledger
b.cost of goods sold
c.FOB destination
d.FOB shipping point
e.gross profit
f.purchase invoice
g.purchase order
h.purchase requisition
i.purchases
j.receiving report
k.schedule of accounts payable
l.trade discount
A report indicating what has been received.

Question 67

Record the following transactions for Red Wood Trails in a general journal.
June 3
Purchased $3,985 of merchandise on account from JVC Co.
9
Purchased $2,300 of merchandise on account from Prime Target and Co. Credit terms 2/10, n/30.
12
Purchased $675 of store supplies on account from Craft Shop.
13
Paid for June 3 purchase of merchandise from JVC Co.
19
Paid for June 9 purchase of merchandise from Prime Target and Co.

Question 68

Match the terms with the definitions.a.accounts payable ledger
b.cost of goods sold
c.FOB destination
d.FOB shipping point
e.gross profit
f.purchase invoice
g.purchase order
h.purchase requisition
i.purchases
j.receiving report
k.schedule of accounts payable
l.trade discount
A document prepared by the seller as a bill for the merchandise shipped.

Question 69

Match the terms with the definitions.a.accounts payable ledger
b.cost of goods sold
c.FOB destination
d.FOB shipping point
e.gross profit
f.purchase invoice
g.purchase order
h.purchase requisition
i.purchases
j.receiving report
k.schedule of accounts payable
l.trade discount
A form used to request the purchase of merchandise or other property.

Question 70

Match the terms with the definitions.a.accounts payable ledger
b.cost of goods sold
c.FOB destination
d.FOB shipping point
e.gross profit
f.purchase invoice
g.purchase order
h.purchase requisition
i.purchases
j.receiving report
k.schedule of accounts payable
l.trade discount
A reduction from the list or catalog price offered to different classes of customers.

Question 71

Match the terms with the definitions.a.accounts payable ledger
b.cost of goods sold
c.FOB destination
d.FOB shipping point
e.gross profit
f.purchase invoice
g.purchase order
h.purchase requisition
i.purchases
j.receiving report
k.schedule of accounts payable
l.trade discount
A separate ledger containing an individual account payable for each supplier.

Question 72

Match the terms with the definitions.a.accounts payable ledger
b.cost of goods sold
c.FOB destination
d.FOB shipping point
e.gross profit
f.purchase invoice
g.purchase order
h.purchase requisition
i.purchases
j.receiving report
k.schedule of accounts payable
l.trade discount
Merchandise acquired for resale to customers.

Question 73

The following information was taken from the accounting records of Northern Lights for the month of October, 20--: Complete a partial income statement for the month of October, showing gross profit.

Question 74

The following information was taken from the accounting records of Bay Village Paving Co. for the month of January, 20--: Complete a partial income statement for the month of January, showing gross profit.

Question 75

Record the following transactions as general journal entries. Use the gross-price method.

Question 76

Match the terms with the definitions.a.accounts payable ledger
b.cost of goods sold
c.FOB destination
d.FOB shipping point
e.gross profit
f.purchase invoice
g.purchase order
h.purchase requisition
i.purchases
j.receiving report
k.schedule of accounts payable
l.trade discount
The difference between the goods available for sale and the ending inventory.

Question 77

Match the terms with the definitions.a.accounts payable ledger
b.cost of goods sold
c.FOB destination
d.FOB shipping point
e.gross profit
f.purchase invoice
g.purchase order
h.purchase requisition
i.purchases
j.receiving report
k.schedule of accounts payable
l.trade discount
Transportation charges are paid by the seller.

Question 78

Match the terms with the definitions.a.accounts payable ledger
b.cost of goods sold
c.FOB destination
d.FOB shipping point
e.gross profit
f.purchase invoice
g.purchase order
h.purchase requisition
i.purchases
j.receiving report
k.schedule of accounts payable
l.trade discount
Transportation charges are paid by the buyer.

Question 79

Match the terms with the definitions.a.accounts payable ledger
b.cost of goods sold
c.FOB destination
d.FOB shipping point
e.gross profit
f.purchase invoice
g.purchase order
h.purchase requisition
i.purchases
j.receiving report
k.schedule of accounts payable
l.trade discount
An alphabetical or numerical listing of supplier accounts and balances, usually prepared at the end of the month.