Question 1

The Merchandise Inventory account balance at the end of one period is the amount of beginning inventory in the next period.

Accepted Answer

The ending balance of the Merchandise Inventory account for one accounting period becomes the beginning balance for the next period, as inventory not sold carries over into the next period.

Question 2

The amount of gross profit for a merchandising business will be the same under both the accrual basis and the cash basis of accounting.

Accepted Answer

The amount of gross profit may differ under accrual and cash basis accounting because under accrual accounting, revenue is recognized when earned, even if payment is not received, whereas under cash basis accounting, revenue is recognized only when payment is received. This means that accrual accounting may recognize revenue in one period and expenses in another, while cash accounting only recognizes revenue and expenses when cash is received or paid. This can result in different gross profit amounts under each method.

Question 3

Each sales transaction for sellers using a perpetual inventory system involves recognizing revenue and cost of goods sold.

Accepted Answer

In a perpetual inventory system, the cost of goods sold is recorded at the time of the sale and revenue is recognized. Therefore, each sales transaction involves recognizing revenue and cost of goods sold.

Question 4

Z-Mart did not take advantage of a supplier's offer of 2/10,n/30,and paid the invoice at the end of the month.By not taking the discount Z-Mart lost the equivalent of 18% annual interest on the amount of the purchase.

Accepted Answer

The answer of Z-Mart did not take advantage of a...

Question 5

A debit to Sales Returns and Allowances and a credit to Accounts Receivable mean that a customer may have returned merchandise.

Accepted Answer

This is correct, as a debit to Sales Returns and Allowances indicates a decrease in sales revenue due to returns, and a credit to Accounts Receivable indicates a decrease in the amount owed to the company by the customer who returned the merchandise.

Question 6

Periodic inventory systems were historically used by companies that sold large quantities of low-value items.

Accepted Answer

Periodic inventory systems require manually counting inventory at specific intervals, which is more feasible for companies with low-value items that are sold in large quantities. Higher-value items or items with lower turnover rates may benefit from more frequent inventory tracking, as provided by a perpetual inventory system.

Question 7

Credit terms are the listing of the amounts and timing of payments between a buyer and a seller.

Accepted Answer

This statement is true. Credit terms outline the payment expectations between a buyer and seller, including the amount owed and when it is due.

Question 8

A perpetual inventory system is able to directly measure shrinkage.

Accepted Answer

A perpetual inventory system tracks inventory transactions in real-time but cannot directly measure shrinkage; shrinkage is determined by physical inventory counts and comparing the results to the perpetual inventory records.

Question 9

A journal entry with a debit to cash of $980,a debit to Sales Discounts of $20,and a credit to Accounts Receivable of $1,000 means that a customer has taken a 10% cash discount for early payment.

Accepted Answer

The answer of A journal entry with a debit to...

Question 10

Sellers offer a purchase discount to buyers for prompt payment for purchases on account.

Accepted Answer

The answer of Sellers offer a purchase discount to buyers...

Question 11

In a periodic inventory system,cost of goods sold is not recorded as each sale occurs.

Accepted Answer

In a periodic inventory system, cost of goods sold is calculated and recorded at the end of a specific period (such as monthly or quarterly) based on a physical count of the inventory on hand. It is not recorded as each sale occurs.

Question 12

A credit memorandum informs a customer of a credit to its Accounts Payable account from a sales return or allowance.

Accepted Answer

A credit memorandum informs a customer of a credit to its Accounts Receivable account, not Accounts Payable, reflecting a sales return, allowance, or other credit situation.

Question 13

FOB shipping or FOB factory means ownership of goods transfers to the buyer at the buyer's place of business.

Accepted Answer

FOB shipping or FOB factory means ownership of goods transfers to the buyer at the seller's place of business, not the buyer's place of business. The buyer is responsible for arranging and paying for transportation from the seller's location to their own location.

Question 14

The terms 2/10,n/30 means that the seller offers the purchaser a 2% cash discount if the amount is paid in full within 10 days.Otherwise,the full amount is due in 30 days.

Accepted Answer

The statement accurately describes the meaning of the terms 2/10, n/30.

Question 15

In a perpetual inventory system,the net cost of purchases is accumulated in the Inventory account.

Accepted Answer

In a perpetual inventory system, the net cost of purchases is recorded directly in the Inventory account as soon as they are acquired, which allows for ongoing tracking and management of inventory levels and costs.

Question 16

The purchaser usually records a purchase return by a credit memorandum.

Accepted Answer

The answer of The purchaser usually records a purchase return...

Question 17

In a periodic inventory system,Purchases is a temporary account.

Accepted Answer

In a periodic inventory system, the purchases account is used to record the total amount spent on inventory purchases during a specific accounting period. It is considered a temporary account because its balance is transferred to the cost of goods sold account at the end of the period.

Question 18

Sales of $350,000 and net sales of $323,000 may reflect sales discounts of $27,000.

Accepted Answer

Sales discounts are often subtracted from sales to determine net sales, so it is possible for sales to be $350,000 and net sales to be $323,000 if there were $27,000 in sales discounts.

Question 19

Trade discounts are entered into the accounting system.

Accepted Answer

Trade discounts are not entered into the accounting system; instead, they are deducted from the list price before recording the net sale amount.

Question 20

The adjustment to reflect shrinkage is a debit to Income Summary and a credit to Shrinkage Expense.

Accepted Answer

The adjustment to reflect shrinkage is a debit to Shrinkage Expense (or Inventory Shrinkage) and a credit to Inventory, to account for the loss of inventory not sold.

Quiz 5: Accounting for Merchandising Activities