Question 1

The Sales Returns and Allowances account balance should be reported as a deduction from the Sales account balance because it is a contra revenue account.
BT: Comprehension

Accepted Answer

The Sales Returns and Allowances account is a contra revenue account and has a debit balance, so it is reported as a deduction from the Sales account balance on the income statement to arrive at the net sales figure.

Question 2

A bank reconciliation is an internal report prepared to verify the accuracy of both the cash account of a business or individual and the bank statement.
BT: Knowledge

Accepted Answer

A bank reconciliation is indeed an internal report used to check the accuracy of a business or individual's cash account and the bank statement.

Question 3

Reductions in the selling price of merchandise that occur before a sale is made is recorded by debiting sales discounts and crediting accounts receivable.
BT: Knowledge

Accepted Answer

Reductions in the selling price of merchandise that occur before a sale is made are recorded by debiting sales allowances and crediting accounts receivable, not sales discounts.

Question 4

Recording sales returns and allowances in a separate account is an important internal control that allows management to evaluate the volume of returns and allowances as a potential indicator of the quality of their products.
BT: Comprehension

Accepted Answer

By recording sales returns and allowances separately, management can easily identify the volume and reasons for returns and allowances. This can provide insight into potential issues with product quality or customer satisfaction that need to be addressed.

Question 5

If a company's records show a different cash balance from that shown on the company's bank statement,either the company or the bank has made an error.
BT: Comprehension

Accepted Answer

Differences between a company's cash balance and the bank statement can occur due to timing differences, such as outstanding checks or deposits in transit, not necessarily errors by the company or the bank.

Question 6

The Sales Returns and Allowances account balance should be deducted from the Sales account balance when computing net sales.
BT: Knowledge

Accepted Answer

This is because sales returns and allowances are considered as deductions from the total sales amount, and only the net sales amount (total sales minus returns and allowances) is actually earned by the company. Therefore, it is necessary to deduct the Sales Returns and Allowances account balance from the Sales account balance when computing net sales.

Question 7

Transportation costs associated with acquiring inventory should be included in the inventory account if a perpetual inventory system is used.
BT: Knowledge

Accepted Answer

In a perpetual inventory system, transportation costs associated with acquiring inventory are added to the cost of inventory and are included in the inventory account. This is because the perpetual inventory system constantly updates the inventory balance, including any costs associated with acquiring inventory.

Question 8

Perpetual inventory systems often use technology such as bar codes,optical scanners,and computers.
BT: Knowledge

Accepted Answer

Perpetual inventory systems rely on technology to track inventory levels in real time, often using bar codes, optical scanners, and computer software.

Question 9

An employee authorised to sign cheques may record cash disbursement transactions.
BT: Comprehension

Accepted Answer

Allowing an employee who is authorized to sign cheques to also record cash disbursement transactions can lead to a conflict of interest and increase the risk of fraud or errors, violating the principle of segregation of duties.

Question 10

A periodic inventory system does not require a physical count to determine inventory levels during the accounting period.
BT: Knowledge

Accepted Answer

A periodic inventory system requires a physical count at the end of the accounting period to determine inventory levels.

Question 11

Only companies that use a periodic inventory system need to perform a physical count of their inventory.
BT: Knowledge

Accepted Answer

Both periodic and perpetual inventory systems require a physical count to verify inventory levels and account for discrepancies like theft or loss.

Question 12

After preparing a bank reconciliation,no adjusting journal entries need to be made for outstanding cheques or deposits in transit.
BT: Comprehension

Accepted Answer

Outstanding cheques and deposits in transit are timing differences that do not require adjusting journal entries, as they will be resolved in future periods when the transactions clear the bank.

Question 13

A periodic inventory system does not track the cost of goods sold during the accounting period.
BT: Knowledge

Accepted Answer

A periodic inventory system updates the cost of goods sold at the end of the accounting period, not continuously throughout it.

Question 14

"Shrinkage" is another term for inventory loss due to theft,error,or fraud.
BT: Knowledge

Accepted Answer

Shrinkage refers to inventory loss caused by various reasons including theft, error, or fraud. Therefore, the statement is true.

Question 15

Most companies report their sales revenue and contra-revenue accounts as well as net sales on their externally reported income statements.
BT: Knowledge

Accepted Answer

The answer of Most companies report their sales revenue and...

Question 16

Credit terms of "2/10,n/30" mean that if payment is made in two days,a 10% discount may be taken; if not paid within two days,the full invoice price will be due in thirty days.
BT: Comprehension

Accepted Answer

The credit terms "2/10, n/30" mean a 2% discount is available if payment is made within 10 days; otherwise, the full invoice amount is due in 30 days.

Question 17

Customers are the biggest source of shrinkage in the retail industry.
BT: Knowledge

Accepted Answer

The answer of Customers are the biggest source of shrinkage...

Question 18

NSF (Not Sufficient funds)cheques are deducting from the balance per book when conducting bank reconciliation.
BT: Knowledge

Accepted Answer

NSF (Not Sufficient Funds) cheques are deducted from the balance per book when conducting bank reconciliation because they have not been authorized by the bank to be withdrawn from the account, resulting in a decrease in the available balance.

Question 19

NSF cheques are recorded as accounts payable.
BT: Knowledge

Accepted Answer

NSF (Non-Sufficient Funds) cheques are recorded as accounts receivable, not accounts payable, because they represent money that is owed to the company by the customer who issued the cheque.

Question 20

Merchandise inventory for sale is recorded in the same account as supplies for internal use.
BT: Knowledge

Accepted Answer

Merchandise inventory for sale and supplies for internal use are two distinct types of inventory and are recorded in separate accounts.

Quiz 6: Merchandising Operations and the Multistep Income Statement

The Sales Returns and Allowances account balance should be reported as a deduction from the Sales account balance because it is a contra revenue account. BT: Comprehension

A bank reconciliation is an internal report prepared to verify the accuracy of both the cash account of a business or individual and the bank statement. BT: Knowledge

Reductions in the selling price of merchandise that occur before a sale is made is recorded by debiting sales discounts and crediting accounts receivable. BT: Knowledge

Recording sales returns and allowances in a separate account is an important internal control that allows management to evaluate the volume of returns and allowances as a potential indicator of the quality of their products. BT: Comprehension

If a company's records show a different cash balance from that shown on the company's bank statement,either the company or the bank has made an error. BT: Comprehension

The Sales Returns and Allowances account balance should be deducted from the Sales account balance when computing net sales. BT: Knowledge

Transportation costs associated with acquiring inventory should be included in the inventory account if a perpetual inventory system is used. BT: Knowledge

Perpetual inventory systems often use technology such as bar codes,optical scanners,and computers. BT: Knowledge

An employee authorised to sign cheques may record cash disbursement transactions. BT: Comprehension

A periodic inventory system does not require a physical count to determine inventory levels during the accounting period. BT: Knowledge

Only companies that use a periodic inventory system need to perform a physical count of their inventory. BT: Knowledge

After preparing a bank reconciliation,no adjusting journal entries need to be made for outstanding cheques or deposits in transit. BT: Comprehension

A periodic inventory system does not track the cost of goods sold during the accounting period. BT: Knowledge

"Shrinkage" is another term for inventory loss due to theft,error,or fraud. BT: Knowledge

Most companies report their sales revenue and contra-revenue accounts as well as net sales on their externally reported income statements. BT: Knowledge

Credit terms of "2/10,n/30" mean that if payment is made in two days,a 10% discount may be taken; if not paid within two days,the full invoice price will be due in thirty days. BT: Comprehension

Customers are the biggest source of shrinkage in the retail industry. BT: Knowledge

NSF (Not Sufficient funds)cheques are deducting from the balance per book when conducting bank reconciliation. BT: Knowledge

NSF cheques are recorded as accounts payable. BT: Knowledge

Merchandise inventory for sale is recorded in the same account as supplies for internal use. BT: Knowledge