Question 1

A sales discount does not

Accepted Answer

A sales discount is a reduction in the price of a product that is usually offered to customers who pay their bills within a certain period. Since the discount reduces the total revenue received from a credit sale, it decreases the recorded amount in revenue or sales accounts. It also increases the amount recorded in a contra-revenue account, which is a negative revenue account that reduces the balance in a revenue account. However, it does not increase an operating expense account, as the expense account represents costs incurred in generating revenue, such as cost of goods sold, salaries, and rent.

Question 2

Company P sells $3000 of merchandise on account to Company Q with credit terms of 2/10 n/30. If Company Q remits a check taking advantage of the discount offered what is the amount of Company Q's check?

Accepted Answer

The credit terms 2/10 n/30 mean that Company Q can take a 2% discount if they pay within 10 days. The discount on $3000 is $60 (2% of $3000), so the amount of the check would be $3000 - $60 = $2940.

Question 3

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 way to incentivize customers to pay their accounts promptly. This discount can be a percentage off the total amount owed or a fixed dollar amount. By offering this discount, customers are motivated to pay their accounts earlier, which improves the business's cash flow and reduces the risk of bad debts. The other options listed (B, C, and D) are not related to prompt payment and would not be effective as incentives.

Question 4

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

Accepted Answer

The Sales Returns and Allowances account only provides information on the amount and type of returns and allowances given to customers, not the percentage of credit sales versus cash sales.

Question 5

A sales invoice is a source document that

Accepted Answer

A sales invoice provides evidence of credit sales, including information such as quantity, description, price, and terms of payment. It is used to record the transaction and create an accounting entry in the company's books. It does not provide support for goods purchased for resale or evidence of incurred operating expenses. Although it serves as a customer receipt, it is primarily used as a source document for accounting purposes.

Question 6

A credit granted to a customer for returned goods requires a debit to

Accepted Answer

When a customer returns goods, the seller needs to adjust the original sale. This is done by debiting (increasing) Sales Returns and Allowances, which is a contra-revenue account that reduces total sales revenue, and crediting (decreasing) Accounts Receivable to reflect the reduction in the amount the customer owes.

Question 7

The collection of a $1200 account after the 2 percent discount period will result in a

Accepted Answer

When the account is collected after the discount period, the full amount of $1200 is credited to Accounts Receivable, as the discount is no longer applicable.

Question 8

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 each sale or return of merchandise occurs. This means that the Cost of Goods Sold account is used whenever there is a sale of merchandise or a return of merchandise sold. Therefore, choice D is the best answer.

Question 9

If a customer agrees to retain merchandise that is defective because the seller is willing to reduce the selling price this transaction is known as a sales

Accepted Answer

This transaction is known as a sales allowance. A sales discount is a reduction in the selling price for early payment, a return is when the customer sends the defective merchandise back, and a contra asset refers to an account that offsets the balance of another asset account.

Question 10

Sales Returns and Allowances is increased when

Accepted Answer

Sales Returns and Allowances is a contra account to Sales, which means it reduces the amount of revenue. It is increased when customers return goods that were sold on credit, resulting in a reduction of the original sale.

Question 11

A credit sale of $3600 is made on July 15 terms 3/10 n/30 on which a return of $100 is granted on July 18. What amount is received as payment in full on July 24?

Accepted Answer

The net amount due on the sale is calculated as follows:

Sale amount = $3600
Less: Return = $100
Net amount due = $3500

Since the terms are 3/10, the customer is entitled to a 3% discount if payment is made within 10 days. Therefore, the amount due if paid within 10 days is:

Net amount due = $3500
Less: 3% discount = $105
Amount due if paid within 10 days = $3395

Since the customer did not pay within 10 days, the full amount of $3500 is due within 30 days. Therefore, the amount received on July 24 must be $3500. Any other amount would not be payment in full.

Therefore, the answer is A) $3395.

Question 12

Ayala Company sells merchandise on account for $9000 to Verde Company with credit terms of 2/10 n/30. Verde Company returns $1500 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

Verde Company initially owes $9000. After returning $1500 of damaged merchandise, the amount owed is reduced to $7500. With a 2% discount for early payment, the discount amount is $7500 * 0.02 = $150. Therefore, the amount of the check is $7500 - $150 = $7350.

Question 13

Sales revenue

Accepted Answer

Sales revenue may be recorded before cash is collected, especially in the case of credit sales where the payment is received at a later date. The revenue is recognized at the time of sale, even if the payment is not received until a later time.

Question 14

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

Accepted Answer

The Sales Returns and Allowances account is a contra revenue account because it has the opposite effect on revenue accounts. It is used to record returns, refunds, or allowances granted to customers for goods or services previously sold. By deducting from the revenue accounts, the net sales figure is obtained.

Question 15

When goods are returned that relate to a prior cash sale

Accepted Answer

When goods are returned from a prior cash sale, the cash account is credited to reflect the return of cash to the customer.

Question 16

The collection of a $1400 account after the 2 percent discount period will result in a

Accepted Answer

Since the collection is happening after the 2 percent discount period, the customer has not taken advantage of the discount and the full amount of $1400 is due. Therefore, the account will be debited for the full amount of $1400.

Question 17

The credit terms offered to a customer by a business firm are 3/10 n/30 which means that

Accepted Answer

The credit terms 3/10 n/30 means that the customer can deduct a 3% discount if the bill is paid within 10 days of the invoice date. If the bill is not paid within 10 days, the full amount is due within 30 days of the invoice date.

Question 18

A Sales Returns and Allowances account is not debited if a customer

Accepted Answer

A Sales Returns and Allowances account is typically used to record returns or allowances made to customers for merchandise that is defective, not in accordance with specifications, or of inferior quality. However, if a customer utilizes a prompt payment incentive (such as a discount for paying early), this does not result in a return or allowance and therefore should not be recorded in the Sales Returns and Allowances account.

Question 19

The journal entry to record a credit sale is

Accepted Answer

Accounts Receivable Sales Revenue is the best choice to record a credit sale as the sale is made on credit, and thus, the customer owes the company money. This transaction will increase the Accounts Receivable account (a current asset account) and also increase the Sales Revenue account (an income statement account).

Question 20

Sales revenues are usually considered earned when

Accepted Answer

Sales revenue is earned when the goods have been delivered or transferred from the seller to the buyer. It is not dependent on the receipt of cash or the placement of an order. Adjusting entries are made at the end of an accounting period to ensure accurate financial reporting, but they do not affect the timing of when sales revenue is considered earned.

Quiz 5: Accounting for Merchandising Operations