Question 1

Purchases of supplies on credit that are to be used in the business are entered in:

Accepted Answer

The answer of Purchases of supplies on credit that are...

Question 2

The amount of the purchases for a period is presented in:

Accepted Answer

The amount of purchases for a period is presented in the income statement as part of the cost of goods sold calculation. The cost of purchases statement is not a commonly used financial statement, and the balance sheet and statement of owner's equity do not directly show the amount of purchases.

Question 3

When the sales department needs goods, it sends the purchasing department a form called:

Accepted Answer

When the sales department needs goods, it sends a purchase requisition to the purchasing department to request the necessary items. This is done before a purchase order is created and a sales invoice is issued after the sale is made. A purchase invoice is sent by the seller to request payment.

Question 4

To record a return of merchandise purchased on credit on the books of the buyer, the accountant would:

Accepted Answer

When a buyer returns merchandise that was purchased on credit, the accountant should debit Accounts Payable to decrease the liability (since the buyer owes less to the seller after the return) and credit Purchases Returns and Allowances to record the return of the merchandise. This entry reflects the reduction in the cost of purchases and the amount owed to the supplier.

Question 5

Which of the following statements is correct?

Accepted Answer

Option A is incorrect because Freight in is added to purchases to arrive at delivered cost of purchases. Option B is incorrect because freight charges that are listed on the invoice received from a supplier are part of the total credit to Accounts Payable to record the credit purchase. Option D is incorrect because the freight in account is not subtracted from sales to get net sales. Hence, the correct statement is that freight in account is also known as transportation in, which is option C.

Question 6

Postings to the accounts payable ledger should be made:

Accepted Answer

Postings to the accounts payable ledger should be made on a daily basis to ensure accurate and up-to-date records. This allows for timely payments to suppliers and enables the company to effectively manage its cash flow. Monthly, weekly, or end-of-fiscal-period postings may result in delays, errors, and inefficiencies in the accounts payable process.

Question 7

Check marks next to the individual amounts in the purchases journal mean that the amounts:

Accepted Answer

Check marks next to the individual amounts in the purchases journal mean that the amounts have been posted to the accounts payable subsidiary ledger. This allows a company to keep track of its outstanding balances owed to its vendors, and also enables easy reconciliation of the general ledger accounts.

Question 8

In a firm that uses special journals, the purchase of merchandise for cash is recorded in the:

Accepted Answer

The purchase of merchandise for cash is recorded in the cash payments journal because this journal is used to record all transactions where cash is paid out, including the purchase of merchandise.

Question 9

Purchases of merchandise on credit should be recorded in:

Accepted Answer

Purchases of merchandise on credit would be recorded in the purchases journal, as it is a record of credit purchases made by the company. The sales journal is used for recording sales made to customers, the cash payments journal is used for recording payments made by the company, and the general journal is used for any other transactions not recorded in specialized journals.

Question 10

The type of account and normal balance of Purchase Returns and Allowances is a(n):

Accepted Answer

Purchase Returns and Allowances is a contra account to the Cost of Goods Sold (COGS) account, meaning it offsets the COGS. It normally has a credit balance because it reduces the total cost of goods sold.

Question 11

In a firm that uses special journals, the purchase of merchandise with terms of 2/10, n/30 is recorded in the:

Accepted Answer

The purchase of merchandise with terms of 2/10, n/30 is a credit transaction, and the purchases journal is used to record all credit purchases of merchandise. The cash receipts journal is used to record cash received, the cash payments journal is used to record cash payments, and the general journal is used for all other transactions not recorded in the special journals.

Question 12

The total of the balances in the individual creditor's accounts should agree with the balance of:

Accepted Answer

The total of the balances in the individual creditor's accounts should agree with the balance of the Accounts Payable account in the general ledger, as creditors represent amounts the company owes to its suppliers or vendors, which is what the Accounts Payable account tracks.

Question 13

Music, Inc. uses a periodic inventory system when recording its purchases and sales of inventory. If the business returns $1,000 of damaged goods to its supplier, select the correct entry to record the return:

Accepted Answer

The correct entry to record the return of damaged goods under a periodic inventory system is to credit (reduce) the Accounts Payable account, which reflects the reduction in the amount owed to the supplier, and debit (increase) the Purchases Returns and Allowances account, which offsets the original purchase. Option A is incorrect because it debits (increases) Purchases Returns and Allowances instead of crediting it; Option B is incorrect because it debits (increases) Merchandise Inventory, which would only be suitable under a perpetual inventory system; Option D is incorrect because it would increase the Purchases account, which would overstate the cost of goods sold.

Question 14

In a firm that uses special journals, the return of damaged merchandise to a supplier and receipt of a credit memorandum is recorded in the:

Accepted Answer

The return of damaged merchandise to a supplier and receipt of a credit memorandum is recorded in the general journal. This is because such transactions do not fit neatly into the more specialized journals like those for cash receipts, purchases, or cash payments. The general journal is used for recording unique or infrequent transactions.

Question 15

Nice Guys Apparel received a $200 credit memorandum as an allowance for goods that it returned to one of its suppliers. Identify the statement below that would be correct when posting the transaction.

Accepted Answer

When Nice Guys Apparel returns goods to a supplier, they receive a credit memorandum, which is essentially an allowance for the returned goods. To record this transaction, a debit of $200 would be posted to the Accounts Payable account in the general ledger, reducing the amount owed to the supplier.

Question 16

Credit terms of 1/10, n/30 means that:

Accepted Answer

Credit terms of 1/10, n/30 mean that if the invoice is paid within 10 days of its date, a 1% discount may be taken; otherwise, the total amount is due in 30 days.

Question 17

In a firm that uses special journals, the receipt of a credit memorandum from a supplier for merchandise that was damaged but can be sold at a reduced price is recorded in the:

Accepted Answer

The receipt of a credit memorandum from a supplier for damaged merchandise that can still be sold at a reduced price is an unusual transaction that doesn't fit neatly into the specialized journals designed for routine transactions. Therefore, it is recorded in the general journal, where non-routine and adjustment entries are made.

Question 18

The source document for recording a purchase of merchandise on credit is:

Accepted Answer

The purchase invoice is the source document for recording a purchase of merchandise on credit. It contains details such as the items purchased, quantities, prices, and payment terms. The other options listed are not relevant to recording a purchase of merchandise on credit.

Question 19

In a firm that uses special journals, the purchase of merchandise for $2,800, payable in 30 days, plus a freight charge of $140 is recorded in the:

Accepted Answer

The purchase of merchandise is a transaction that would be recorded in the purchases journal, which is a special journal used to record purchases of inventory on account. The freight charge would be included in the total amount of the purchase, which in this case is $2,940 ($2,800 + $140). The fact that the payment is due in 30 days does not affect the journal entry, as this information is typically tracked in a separate accounts payable ledger.

Question 20

A creditor's account in the accounts payable ledger has a $1,600 beginning balance. After a transaction for $700 is posted from the purchases journal, the balance of the creditor's account is:

Accepted Answer

The beginning balance of the creditor's account is $1,600 (credit balance). After a transaction for $700 is posted from the purchases journal, we need to add it to the beginning balance to get the new balance of the creditor's account.

$1,600 (beginning balance) + $700 (transaction) = $2,300 (new balance)

Since the transaction is a credit to the creditor's account (i.e., the company owes $700 to the creditor), the new balance is a credit balance of $2,300. Therefore, the correct answer is C: $2,300 credit.

Quiz 8: Accounting for Purchases and Accounts Payable