Question 1

To obtain the maximum possible benefit from a cash discount of 2/10, n/30, the buyer should pay the invoice:

Accepted Answer

To obtain the maximum possible benefit from a cash discount of 2/10, n/30, the buyer should pay the invoice on the last day of the discount period, i.e. in 10 days. This allows the buyer to take advantage of the discount while also maintaining a reasonable payment timeline. Paying immediately may not always be feasible, and waiting until the end of the month or when the seller threatens legal action eliminates the opportunity for the discount.

Question 2

GST collected on sales is accumulated in a liability account called GST collections and GST paid on purchases is accumulated in an account with a debit balance called GST outlays. What type of account is GST outlays?

Accepted Answer

GST outlays represents an amount owed to the government, so it is a liability account with a debit balance, or a contra liability account.

Question 3

In Australia, where most accounting is computerised, the use of the periodic inventory system is declining. Which of the following businesses is still most likely to use the periodic approach to accounting for inventory?

Accepted Answer

A chemist shop is most likely to use the periodic inventory system as they have a relatively small range of products with high unit costs, which do not change frequently. This makes it more efficient and cost-effective to conduct a physical count of inventory at the end of each accounting period rather than constantly tracking inventory levels through a computerised system.

Question 4

Jan sold goods to John for $3300 including GST. John paid his account within the discount period and received a settlement discount of 2%. Using the gross method, which of the following is the correct entry in Jan's books to record the payment by John?

Accepted Answer

The gross method records the discount as a reduction in revenue. The correct entry is to debit the bank for the amount received, debit the discount allowed account for the amount of the discount, and credit the accounts receivable account for the original amount of the invoice.

Question 5

Under the perpetual inventory system inventory purchased is debited to which account?

Accepted Answer

Under the perpetual inventory system, when inventory is purchased, the Inventory account is debited to reflect the increase in inventory. This system continuously updates inventory records, including purchases and sales.

Question 6

Adelaide sold goods to Perth on credit at a price of $4400 including GST. What is the entry to record this transaction in Adelaide's books under either the perpetual or periodic inventory system? (Ignore the transfer to COS required under the perpetual system.)

Accepted Answer

In this transaction, Adelaide sells goods on credit, including GST. The total amount including GST is $4400. The correct entry involves debiting accounts receivable for the total amount including GST ($4400) and crediting sales for the amount excluding GST ($4000, assuming a 10% GST rate), with the difference ($400) credited to GST collections. This reflects the revenue earned from the sale and the GST collected on behalf of the government.

Question 7

Under the perpetual inventory system, what is the entry to record the cost price of goods sold on credit?

Accepted Answer

The answer of Under the perpetual inventory system, what is...

Question 8

Under the periodic inventory system an income statement cannot be prepared without a/an ____________. It is only after a/an ___________ that the cost of sales can be estimated.

Accepted Answer

Under the periodic inventory system, inventory is not continuously tracked, so a physical count or stocktake is required to determine the ending inventory balance. Once the ending inventory is known, the cost of goods sold (or cost of sales) can be calculated by subtracting the beginning inventory from the sum of the purchases and the ending inventory. Without a stocktake, the cost of sales cannot be accurately determined, and therefore an income statement cannot be prepared. A virus scan, error check, or audit are not directly related to the inventory system and would not have an impact on preparing an income statement under the periodic inventory system.

Question 9

Which of these is not an advantage of the perpetual inventory system?

Accepted Answer

The perpetual inventory system eliminates the need for a physical stock-take, but it does not eliminate the possibility of errors or discrepancies in inventory records. Therefore, periodic physical stock-takes may still be necessary to ensure the accuracy of the perpetual inventory system.

Question 10

Which of the following is not true of the periodic inventory system?

Accepted Answer

In a periodic inventory system, inventory variances (differences between the physical count of inventory and the inventory records) cannot be identified regularly because the system does not track inventory on a transaction-by-transaction basis. Inventory variances can only be determined after a physical count, which typically occurs at the end of an accounting period.

Question 11

Under the perpetual inventory system what is the correct entry to record the cost of the sale of 2 reclining chairs sold to a customer at $1100 per chair including GST? The items were originally purchased on credit at $500 each plus GST of $50 per chair.

Accepted Answer

Under the perpetual inventory system, the cost of goods sold is recorded at the time of each sale by debiting the cost of sales and crediting inventory for the cost of the items sold. In this case, the cost of each chair is $500, so for 2 chairs, the total cost is $1000. Hence, the correct entry is to debit cost of sales and credit inventory for $1000.

Question 12

Under the periodic inventory system, what is the entry for the credit purchase of 10 electric guitars at $250 per guitar, plus GST of 10%?

Accepted Answer

Under the periodic inventory system, purchases are recorded at the net cost (price of the product plus any applicable taxes). Therefore, the entry for the credit purchase of 10 electric guitars at $250 per guitar, plus GST of 10%, would be to debit Purchases for the net cost of $2500 and debit GST Outlays for the amount of GST paid ($250), and credit Accounts Payable for the total amount owed ($2750). Choice A correctly reflects this entry, while the other options are incorrect or incomplete.

Question 13

What is the entry to record the return of goods to a supplier under the perpetual inventory system, including GST?

Accepted Answer

When goods are returned to a supplier, accounts payable is debited to reduce the liability to the supplier, inventory is credited to reduce the amount of inventory on hand, and GST outlays are credited to reduce the tax paid on the original purchase. Therefore, the correct entry is to debit accounts payable, credit inventory, and credit GST outlays.

Question 14

Under the periodic inventory system inventory purchased is debited to which account?

Accepted Answer

Under the periodic inventory system, inventory purchased is debited to the Purchases account. This is because the cost of goods purchased is added to the beginning inventory to determine the cost of goods available for sale. The cost of goods sold is then calculated by subtracting ending inventory from the cost of goods available for sale.

Question 15

Freight outward paid by the seller is classified as a/an ____________ expense in the seller's income statement.

Accepted Answer

Freight outward paid by the seller is considered a selling expense because it is directly associated with the delivery of goods to customers.

Question 16

In relation to discount terms, what does 2/10, n/30 mean?

Accepted Answer

2/10, n/30 means a 2% discount can be deducted from the invoice price if payment is made within 10 days. If full payment is not made within 10 days, then the full amount is due within 30 days of the invoice date.

Question 17

B sold goods to A on credit for $2 000. What is the correct accounting entry to record this transaction in B's books? Ignore GST and cost of sales.

Accepted Answer

The correct accounting entry to record this transaction in B's books is to debit accounts receivable $2,000 and credit sales $2,000. This is because B has made a sale on credit to A, and the amount owed by A is recorded as an accounts receivable on B's books. The credit entry is to record the sale made by B to A. Option A is incorrect because there is no bank involved in this transaction. Option C is incorrect as it incorrectly debits sales instead of accounts receivable. Option D is incorrect as it involves cost of sales, which is not relevant in this transaction.

Question 18

B sold goods to A on credit at a price of $2200 including GST. What is the correct accounting entry to record this transaction in B's books?

Accepted Answer

The correct entry involves debiting accounts receivable for the total amount including GST ($2200) and crediting sales for the amount before GST ($2000) and GST collections for the GST amount ($200). This accurately reflects the revenue earned and the GST collected on the sale.

Question 19

The purpose of offering a credit customer a discount after the sale has occurred is to:

Accepted Answer

Offering a discount after the sale has occurred can encourage the customer to make early payment of the amount owing. This can improve cash flow for the business and reduce the risk of bad debt.

Question 20

Under the perpetual inventory system, what is the entry for the credit purchase of 10 electric guitars at $250 per guitar plus GST of $25 each?

Accepted Answer

Under the perpetual inventory system, when goods are purchased on credit, the inventory account is debited for the cost of the goods, and any GST paid on the purchase is debited to a GST outlays (or similar) account. The total amount payable, including the cost of goods and GST, is credited to accounts payable. In this case, the inventory cost is 10 guitars at $250 each, totaling $2500, and the GST is 10 times $25, totaling $250. The total credited to accounts payable is the sum of these amounts, $2750.

Quiz 6: Accounting for Retailing