Question 1

The Sales Returns and Allowances account is classified as a(n)

Accepted Answer

The Sales Returns and Allowances account is classified as a contra-revenue account because it reduces the total sales revenue by accounting for returns and allowances given to customers.

Question 2

The Sales Returns and Allowances account does not provide information to management about

Accepted Answer

The Sales Returns and Allowances account only provides information about merchandise returned or allowances granted to customers. It does not provide information about the percentage of credit sales versus cash sales, which would be useful in evaluating the company's credit policies and cash flow management.

Question 3

The journal entry to record a credit sale is

Accepted Answer

Accounts Receivable is the account that records credit sales. Sales Revenue is the account that records revenue generated from sales, including both credit and cash sales. Therefore, the appropriate journal entry to record a credit sale would be Accounts Receivable Sales Revenue.

Question 4

When goods are returned that relate to a prior cash sale,

Accepted Answer

The answer of When goods are returned that relate to...

Question 5

A merchandising company using a perpetual system will make

Accepted Answer

The answer of A merchandising company using a perpetual system...

Question 6

In a perpetual inventory system, the Cost of Goods Sold account is used

Accepted Answer

In a perpetual inventory system, the Cost of Goods Sold account is updated continuously as sales and returns occur, regardless of whether they are cash or credit transactions. Therefore, option D is the correct choice.

Question 7

The credit terms offered to a customer by a business firm are 2/10, n/30, which means that

Accepted Answer

The credit terms 2/10, n/30 means that the customer can deduct a 2% discount if the bill is paid within 10 days of the invoice date.

Question 8

Company A sells ¥8,000 of merchandise on account to Company B with credit terms of 2/10, n/30. If Company B remits a check taking advantage of the discount offered, what is the amount of Company B's check?

Accepted Answer

The credit terms 2/10, n/30 mean that Company B can take a 2% discount if they pay within 10 days. The discount on ¥8,000 is ¥160 (2% of ¥8,000), so the amount of the check would be ¥8,000 - ¥160 = ¥7,840.

Question 9

The respective normal account balances of Sales Revenue, Sales Returns and Allowances, and Sales Discounts are

Accepted Answer

Sales Revenue is a revenue account, which has a credit balance because it increases equity. Sales Returns and Allowances and Sales Discounts are contra-revenue accounts, which have debit balances because they decrease revenue. Therefore, the respective normal account balances of Sales Revenue, Sales Returns and Allowances, and Sales Discounts are credit, debit, debit.

Question 10

Sales revenue

Accepted Answer

Sales revenue may be recorded before cash is collected, especially in the case of credit sales where the customer pays at a later date. Therefore, option B, C, and D are incorrect.

Question 11

When a seller grants credit for returned goods, the account that is credited is

Accepted Answer

The answer of When a seller grants credit for returned...

Question 12

As an incentive for customers to pay their accounts promptly, a business may offer its customers

Accepted Answer

Offering a sales discount is a common practice to incentivize customers to pay their accounts promptly. This could be in the form of a percentage off the total amount owed or a fixed amount discount for paying within a certain time frame. It benefits the customer by allowing them to save money, while also benefiting the business by encouraging prompt payment and potentially increasing cash flow. The other options (B, C, and D) are not directly related to prompt payment and would not necessarily incentivize customers to pay on time.

Question 13

Which of the following would not be classified as a contra account?

Accepted Answer

A) Sales Revenue is not a contra account because it is a revenue account, not an offset or contra account. 
B) Sales Returns and Allowances is a contra account because it is used to reduce the amount of sales revenue due to returns or customer allowances. 
C) Accumulated Depreciation is a contra account because it is used to offset the cost of a fixed asset and reduce its carrying value on the balance sheet. 
D) Sales Discounts is a contra account because it is used to reduce the amount of sales revenue due to early payment discounts offered to customers.

Question 14

The collection of a ¥9,000 account after the 2 percent discount period will result in a

Accepted Answer

The answer of The collection of a ¥9,000 account after...

Question 15

Sales revenues are usually considered earned when

Accepted Answer

Sales revenues are usually considered earned when goods have been transferred from the seller to the buyer. This is in line with the revenue recognition principle, which states that revenue should be recognized when it is earned, regardless of when payment is received. Therefore, the transfer of goods is the critical event that triggers the recognition of the revenue. Cash receipts may occur before, during, or after this event, but they do not have any bearing on the timing of revenue recognition. Orders and adjusting entries are also not relevant in determining when revenue is earned.

Question 16

Moses Company sells merchandise on account for $6,000 to Lane Company with credit terms of 2/10, n/30. Lane Company returns $900 of merchandise that was damaged, along with a check to settle the account within the discount period. What entry does Moses Company make upon receipt of the check?

Accepted Answer

The answer of Moses Company sells merchandise on account for...

Question 17

Which of the following accounts has a normal credit balance?

Accepted Answer

Sales have a normal credit balance because it represents the income earned by the business. Sales Returns and Allowances, Sales Discounts, and Freight-Out have normal debit balances because they represent expenses and reductions in revenue.

Question 18

Ball Company sells merchandise on account for ₤3,000 to Edds Company with credit terms of 2/10, n/30. Edds Company returns ₤600 of merchandise that was damaged, along with a check to settle the account within the discount period. What is the amount of the check?

Accepted Answer

The original sale was ₤3,000, and ₤600 of merchandise was returned, reducing the amount to ₤2,400. The discount is 2% of ₤2,400, which is ₤48. Therefore, the amount of the check is ₤2,400 - ₤48 = ₤2,352.

Question 19

A sales invoice is a source document that

Accepted Answer

A sales invoice is a source document that provides support for credit sales. It includes details of the goods or services sold, their quantities, prices, and any applicable taxes or discounts. Sales invoices are used to keep track of sales transactions and support accounting entries, such as recording revenue earned and accounts receivable.

Question 20

A credit sale of $3,600 is made on July 15, terms 2/10, n/30, on which a return of $200 is granted on July 18. What amount is received as payment in full on July 24?

Accepted Answer

The discount period ended on July 25 (10 days from July 15). Since payment was made on July 24, the discount of 2% is applicable. The amount of discount is $3,600 x 2% = $72. The amount received as payment in full is $3,600 - $72 = $3,332.

Quiz 5: Accounting for Merchandising Operations