Deck 5: The Operating Cycle and Merchandising Operations

Question 1

When the periodic inventory system is used,a physical inventory should be taken at the end of the fiscal year.

Answer 1

True

Question 2

The periodic inventory system provides an up-to-date amount of inventory on hand.

Answer 2

False

Question 3

The computerization has helped taking physical inventory to a great extent under the periodic inventory system.

Answer 3

False

Question 4

Cash flow cannot be managed,but it is a natural component of business operations.

Question 5

Under the periodic inventory system,Cost of goods sold must be computed on the income statement because it is not updated for purchases,sales,and other transactions during the accounting period.

Question 6

An advantage of using the periodic inventory system is that it requires less recordkeeping than the perpetual inventory system.

Question 7

Adding together the ending merchandise inventory and cost of goods sold gives the amount of goods available for sale.

Question 8

A retail operation would not have to take a physical inventory if it uses a perpetual inventory system.

Question 9

Computerization has led to a large increase in the use of the perpetual inventory system.

Question 10

A sale takes place when title to the goods transfers to the buyer.

Question 11

The periodic inventory system relies on a physical count of merchandise for its balance sheet amount.

Question 12

Service businesses can be classified as wholesalers and retailers.

Question 13

A large discount chain,like Wal-Mart or Target,most likely would use the periodic inventory system to maintain control of its inventory.

Question 14

When the terms of sale include a sales discount,it usually is advisable for the buyer to pay within the discount period.

Question 15

The operating cycle involves the purchase and sale of merchandise inventory as well as the subsequent collection of cash from credit sales.

Question 16

A company would be more likely to know the amount of inventory on hand if it used the periodic inventory system rather than the perpetual inventory system.

Question 17

Profitability management involves planning a business's cash receipts and cash payments.

Question 18

Taking a physical inventory refers to making a count of all merchandise on hand at a particular time.

Question 19

Under the periodic inventory system,cost of goods sold is treated as an account.

Question 20

When a U.S.company does business with a British company and payment is in British pounds,an exchange gain or loss occurs if the exchange rate between dollars and pounds changes between the date of sale and the date of payment.

Question 21

Under the periodic inventory system,the Purchases account is used to accumulate all purchases of merchandise for resale.

Question 22

The net cost of purchases is found by deducting freight-in from net purchases.

Question 23

The terms "2/10,n/30" mean that a 2 percent discount is allowed on payments made over 10 but before 30 days after the invoice date.

Question 24

Freight-in is considered a cost of merchandise purchased.

Question 25

The change in merchandise inventory level from the beginning to the end of the year affects cost of goods sold.

Question 26

If insured goods are shipped FOB destination,the seller should file a claim for goods damaged in transit.

Question 27

The difference between gross sales and net sales is equal to the sum of sales discounts and sales returns and allowances.

Question 28

When the buyer bears the transportation charge,it is called freight-out.

Question 29

Ending merchandise inventory is included in the calculation of goods available for sale.

Question 30

Sales Discounts and Sales Returns and Allowances are contra-revenue accounts.

Question 31

Inventory losses are easier to identify under the perpetual inventory system than under the periodic inventory system.

Question 32

FOB shipping point means that the seller incurs the shipping costs.

Question 33

Freight-In is treated as a deduction in the cost of goods sold section of the income statement.

Question 34

Terms of "2/10,n/30" are an example of a trade discount.

Question 35

Sale and purchase of goods should be recorded at their list price,less any trade discount involved.

Question 36

The fee paid by a retailer to a credit card company is considered a contra-revenue account by the retailer.

Question 37

Cost of goods sold is considered an expense of a merchandising business.

Question 38

The calculation of goods available for sale during the year is not affected by the previous year's ending merchandise inventory.

Question 39

With the periodic inventory system,goods available for sale must be calculated before cost of goods sold.

Question 40

When a customer returns goods,the company decreases the Sales account.

Question 41

Merchandising businesses do not need as good a system of internal control as service companies.

Question 42

Upon making a credit card sale,a business should record the sale as an accounts receivable until the customer pays his or her credit card bill.

Question 43

An effective system of internal control centralizes functions in a single,capable individual.

Question 44

Management's regular assessment of its internal controls is called risk assessment.

Question 45

Good internal control dictates that key employees be rotated among different jobs.

Question 46

At the end of each day,the cashier should be the one responsible for comparing the amount on the cash register tape with the day's cash additions to the cash register.

Question 47

Under an effective system of internal control,errors occur only as a result of fraud or dishonesty.

Question 48

An effective system of internal control requires that individuals take periodic vacations.

Question 49

Effective internal control requires a department to purchase supplies on its own.

Question 50

In addition to keeping the records of a purchase transaction,the accounting department should prepare and mail checks in payment of invoices.

Question 51

The use of major credit cards requires sellers to establish the customer's credit.

Question 52

Management's authorization of transactions relates to a control activity in the accounting system.

Question 53

One example of a periodic independent verification is the bank reconciliation.

Question 54

Bonding means insuring a company against employee theft.

Question 55

The separation-of-duties feature of internal control can be negated when several employees are involved in a scheme.

Question 56

Another term for an invoice is a bill.

Question 57

A system of internal control cannot be considered good until the possibility of human error has been completely eliminated.

Question 58

When a business is able to deposit its credit card sales invoices directly into a special bank account,it debits Cash,not Accounts Receivable.

Question 59

It is unlikely that a company would want to bond its employees who handle cash or inventory.

Question 60

The purchasing department prepares a purchase requisition addressed to the vendor (seller)containing instructions related to the items ordered.

Question 61

A discount that buyers take for early payment of merchandise is called a

A) customer discount.
B) purchases discount.
C) sales discount.
D) trade discount.

Question 62

Management is responsible for establishing a satisfactory system of internal control.

Question 63

The periodic inventory system is used most commonly by companies that sell

A) low-priced, high-volume merchandise.
B) low-priced, low-volume merchandise.
C) high-priced, low-volume merchandise.
D) high-priced, high-volume merchandise.

Question 64

Which of the following goods would not be included in merchandise inventory for a purchasing company?

A) Goods in transit shipped FOB shipping point
B) Goods on hand in the showroom
C) Goods in transit shipped FOB destination
D) Goods ordered and received from the supplier

Question 65

A physical inventory is usually taken

A) in the middle of the fiscal year.
B) at the peak of the busy season.
C) at the end of the fiscal year.
D) when the perpetual inventory system, but not the periodic inventory system, is being used.

Question 66

A sale on March 21 with terms of n/10 eom is due to be collected by

A) April 30.
B) March 31.
C) April 10.
D) April 1.

Question 67

Proper control procedures can guarantee the prevention of theft.

Question 68

Each of the following companies is a merchandising business except a

A) candy store.
B) car wash.
C) wholesale parts company.
D) furniture store.

Question 69

Which of the following does not represent a sale?

A) Merchandise placed aside for a customer who plans to come in next week and pay with cash
B) Purchase of merchandise by a customer who pays cash
C) Sale of merchandise to a customer who uses a credit card
D) Purchase of merchandise by a customer who uses a debit card

Question 70

Which of the following activities is not a component of the operating cycle?

A) Payment of employees' wages
B) Sale of merchandise
C) Purchase of merchandise
D) Collection of cash from merchandise sales

Question 71

Merchandise inventory becomes part of cost of goods sold when a company

A) receives payment from the customer.
B) pays for the inventory.
C) purchases the inventory.
D) sells the inventory.

Question 72

Which of the following companies would be most likely to use a computerized perpetual inventory system?

A) Fur dealer
B) Car dealership
C) Auto parts store
D) Boat dealership

Question 73

Under the perpetual inventory system,which of the following accounts would not be used?

A) Cost of Goods Sold
B) Merchandise Inventory
C) Sales
D) Purchases

Question 74

Which of the following should not be included in the count of ending merchandise inventory?

A) Damaged goods to be sold at a reduced price
B) Goods in transit to which a company has title
C) Goods in warehouses
D) Goods sold but not yet delivered

Question 75

Under the perpetual inventory system,in addition to making the entry to record a sale,a company would

A) record an increase in inventory corresponding to the amount of the sale.
B) record a decrease in inventory and an increase in cost of goods sold for the cost of the merchandise sold.
C) record an increase in inventory corresponding to the cost of the inventory.
D) make no additional entry until the end of the period.

Question 76

A merchandising business will earn an income before income taxes of exactly $0 when

A) net sales equals cost of goods sold.
B) operating expenses equal net sales.
C) gross margin equals operating expenses.
D) cost of goods sold equals gross margin.

Question 77

The entry to record a sales return from a customer would require a(n)

A) decrease to Sales.
B) increase to Sales.
C) decrease to Sales Returns and Allowances.
D) increase to Sales Returns and Allowances.

Question 78

The treasurer should prepare and sign a check only after a proper check authorization has been provided.

Question 79

All systems of internal control are identical and,once established,do not need to be changed.

Question 80

A formal request for a purchase from the requesting department of a business is known as a purchase requisition.