Question 1

B&B Lumber reports gross sales of $120,000. If sales returns and allowances are $11,000 and sales discounts are $2,500, what are the net sales?

Accepted Answer

Net sales are calculated by subtracting sales returns and allowances and sales discounts from gross sales. Therefore, $120,000 - $11,000 - $2,500 = $106,500.

Question 2

Dora's Blankets and Bedding had a sale of $600 to a charge customer, terms 2/15, n/30. Dora should record this transaction as follows: (Round intermediary calculations to the nearest cent and final answers to the whole dollar.)

Accepted Answer

The correct way to record the sale on credit terms is to debit Accounts Receivable for the full amount of the sale ($600) and credit Sales for the same amount ($600). This reflects the increase in Accounts Receivable due to the sale on credit and the increase in Sales revenue. The terms 2/15, n/30 are related to a potential sales discount if the payment is made within 15 days, but this does not affect the initial recording of the sale.

Question 3

A characteristic of Sales Returns and Allowances is that:

Accepted Answer

Sales Returns and Allowances is indeed a contra-revenue account, which means it has a credit balance by nature and is used to track returns and allowances from customers, making both B and C correct statements.

Question 4

Gross sales equals:

Accepted Answer

Gross sales are the total of all sales transactions within a given period, including both cash sales and credit sales, before any deductions for returns or discounts.

Question 5

The side that increases the balance of the Sales Discount account is:

Accepted Answer

Sales Discount is a contra revenue account, which means it decreases the total revenue. Since revenue accounts typically increase with credits, contra revenue accounts like Sales Discount increase with debits.

Question 6

Betsy's pottery sold 300 tiles at $40 each to a charge customer, terms 1/10, n/30. Which entry is required to record this transaction? (Round intermediary calculations to the nearest cent and final answers to the whole dollar.)

Accepted Answer

The correct entry to record the sale of tiles on account (charge customer) at $40 each for a total of 300 tiles is to debit Accounts Receivable for the total sale amount ($12,000) and credit Tile Sales for the same amount. The terms 1/10, n/30 indicate a sales discount if paid within 10 days, but this does not affect the initial recording of the sale.

Question 7

A characteristic of the account, Sales Discount, includes the following:

Accepted Answer

Sales Discount is a contra-revenue account, meaning it is used to record the discounts granted to customers for early payment, and it carries a debit balance, opposite to the credit balance of revenue accounts.

Question 8

Merchants who buy goods from wholesalers for resale to customers are:

Accepted Answer

Retailers are merchants who purchase goods from wholesalers to sell them directly to consumers.

Question 9

Credit terms of 3/15, n/30 mean that:

Accepted Answer

Credit terms of 3/15, n/30 mean that a 3% discount is offered if the payment is made within 15 days; otherwise, the net (full) amount is due within 30 days.

Question 10

Sales Tax Payable is a:

Accepted Answer

Sales Tax Payable is a liability account that typically carries a credit balance because it represents an amount that the business owes to the government.

Question 11

The length of time the customer is allowed to repay the bill is the:

Accepted Answer

The length of time the customer is allowed to repay the bill is referred to as the credit period. This is the period during which a customer can pay the bill without incurring any penalties or interest.

Question 12

A contra-revenue account with a debit balance for returned goods is called:

Accepted Answer

Sales Returns and Allowances is the contra-revenue account used to record the return of goods by customers or allowances given for damaged goods, thus it typically carries a debit balance.

Question 13

Reduction given to company customers for early payment is a:

Accepted Answer

A sales discount is a reduction in the price of a product or service that is offered to the customer as an incentive for early payment. It is a common practice in business to encourage prompt payment and improve cash flow.

Question 14

The time frame when customers are allowed to pay their bills and still be eligible for a discount is the:

Accepted Answer

The discount period is the specific time frame during which customers can pay their bills and receive a discount for early payment. This is a common practice in business to encourage timely payments.

Question 15

Santa Materials sold goods for $3,200 plus 5% sales tax to a charge customer, terms n/30. Which entry is required to record this transaction?

Accepted Answer

The total amount receivable is $3,360 ($3,200 + $160 sales tax). The entry records the sale and the sales tax liability.

Question 16

Net sales equal:

Accepted Answer

Net sales are calculated by subtracting sales returns and allowances and sales discounts from gross sales.

Question 17

Home Restoration reports net sales of $70,000. If sales returns and allowances are $13,000 and sales discounts are $2,500, what are gross sales?

Accepted Answer

Gross sales can be calculated by adding net sales, sales returns and allowances, and sales discounts together. Therefore, $70,000 (net sales) + $13,000 (sales returns and allowances) + $2,500 (sales discounts) = $85,500.

Question 18

The normal balance of the Sales Returns and Allowances account is:

Accepted Answer

Sales Returns and Allowances is a contra-revenue account, which means it offsets revenue. Since revenue accounts normally have a credit balance, the contra-revenue account, like Sales Returns and Allowances, has a debit balance to decrease the total revenue reported.

Question 19

Merchandise is:

Accepted Answer

Merchandise refers to goods that a business holds for the purpose of selling to customers, making it both an asset and synonymous with inventory. Supplies, however, are used in the operations of a business and are not intended for sale, distinguishing them from merchandise.

Question 20

The liability account used to record sales tax owed is:

Accepted Answer

Sales Tax Payable is the correct account used to record the sales tax owed by a business to the government. It is a liability account because it represents an amount the company needs to pay in the future.

Quiz 9: Sales and Cash Receipts