Question 1

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

Accepted Answer

A 20% discount on a $100 invoice results in a trade discount of $20.

Question 2

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

Accepted Answer

This statement is true. Cash discounts are commonly offered by businesses as an incentive for customers to pay their invoices quickly, within a specified time period. The discount is usually expressed as a percentage off the quoted price, such as 2/10 net 30, which means that the buyer can take a 2% discount if they pay within 10 days, otherwise the full amount is due within 30 days.

Question 3

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

Accepted Answer

The answer of The first step in the purchasing process...

Question 4

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

Accepted Answer

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

Question 5

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.

Accepted Answer

The balance in the accounts payable ledger should match the balance in the Accounts Payable account in the general ledger, as they reflect the same information. If they do not match, it indicates an error in one or both ledgers.

Question 6

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

Accepted Answer

The terms 2/10, n/30 mean a 2% discount is allowed if payment is made within 10 days, not a 10% discount within 2 days.

Question 7

Assume the gross amount of an invoice is $150 and a trade discount of 10% is allowed. The amount to be entered in the accounting records would be

Accepted Answer

The answer of Assume the gross amount of an invoice...

Question 8

Purchases Returns and Allowances is a contra-purchases account.

Accepted Answer

Purchases Returns and Allowances is a contra-purchases account used to record the merchandise returned by the buyer, allowances granted by the seller, and discounts provided to the buyer. It is subtracted from the purchases account to determine the net purchases.

Question 9

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

Accepted Answer

Gross profit is calculated by subtracting the cost of goods sold from the total revenue. The remaining amount is the sales dollars available to cover expenses, which is known as gross profit.

Question 10

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

Accepted Answer

Trade discounts are special discounts granted by manufacturers to different classes of customers, such as wholesalers or retailers, as a way to encourage them to purchase more and maintain a mutually beneficial business relationship. Cash discounts are discounts offered for early payment, manufacturers' discounts and customers' discounts are not widely used terms in the context of pricing and discounts.

Question 11

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

Accepted Answer

A schedule of accounts payable is prepared from the list of accounts in the accounts payable ledger, not the accounts receivable ledger.

Question 12

(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.

Accepted Answer

The net-price method of recording purchases means that the purchases are recorded at their net amount, assuming that all available cash discounts will be taken. Therefore, purchases are recorded at a lower amount than the invoice price, reflecting the discount for paying early.

Question 13

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

Accepted Answer

A list price is the printed price of a manufacturer or wholesaler that is subject to trade discounts, meaning the actual cost may be lower than the listed price. Net price is the actual price after discounts have been applied, gross price is the total price before any deductions, and retail price is the price that the end consumer pays.

Question 14

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

Accepted Answer

An account number in the Posting Reference column of the general journal indicates that the account has been posted to the general ledger, therefore the statement is true.

Question 15

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.

Accepted Answer

The terms 3/10, n/30 mean that the buyer can receive a 3% discount if the invoice is paid within 10 days, or the full amount is due within 30 days. Therefore, in order to be entitled to the discount, the invoice must be paid on or before April 20, which is 10 days after the invoice date.

Question 16

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

Accepted Answer

A sales invoice is prepared by the seller to provide a detailed list of items shipped, their cost, and the method of shipment. This document serves as proof of sale and allows the seller to bill the buyer for the goods or services provided. The other options listed are not relevant to the seller's shipping process.

Question 17

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

Accepted Answer

The purchases discounts lost account can be used with either the gross-price method or the net-price method of recording purchases.

Question 18

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

Accepted Answer

An invoice can be subject to both trade and cash discounts. Trade discounts are generally offered to customers based on the quantity or volume of purchases, while cash discounts are given to customers who make their payments within a specified time period. Both discounts can be applied to the same invoice, although the cash discount is typically applied after the trade discount has been subtracted.

Question 19

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

Accepted Answer

The answer of A form used to request the purchasing...

Question 20

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

Accepted Answer

A purchase order is a document that serves as a written confirmation of the buyer's intention to purchase specific goods or services, as specified in a purchase requisition. It contains details such as the item name, quantity, price, delivery date, payment terms, and shipping instructions. A purchase order is legally binding and protects both the buyer and the seller in case of disputes. A purchase requisition is a request for goods or services, initiated by the end user, and used as a basis for creating a purchase order. A purchase invoice is a document that the seller generates and sends to the buyer, requesting payment for the goods or services delivered. A receiving report is a document that confirms the delivery of goods or services and their condition upon receipt.

Quiz 11: Accounting for Purchases and Cash Payments

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

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

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

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

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.

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

Assume the gross amount of an invoice is $150 and a trade discount of 10% is allowed. The amount to be entered in the accounting records would be

Purchases Returns and Allowances is a contra-purchases account.

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

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

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

(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.

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

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

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.

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

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

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

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

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