Accounting Cycle of a Merchandising Business Quiz

What is the main difference between a perpetual inventory system and a periodic inventory system?

• The perpetual system updates the Inventory account continuously, while the periodic system does not update the Inventory account.

• The perpetual system updates the Inventory account only when a physical count is performed, while the periodic system updates the Inventory account each time a purchase or sale is made.

• The perpetual system updates the Inventory account each time a purchase or sale is made, while the periodic system updates the Inventory account only when a physical count is performed.

• The perpetual system does not update the Inventory account, while the periodic system updates the Inventory account continuously.

Which account is used to record the shipping costs incurred on purchases of inventory under the periodic system?

• Purchase returns

• Purchase discounts

• Freight-in (Transportation-in)

• Purchases

What is the purpose of the Sales returns account?

• To record cash sales

• To record goods sold but were returned by customers

• To record cash discounts given to customers

• To record cash discounts taken by customers

What is the formula for calculating Gross Profit?

• Net Sales * Cost of Goods Sold

• Net Sales / Cost of Goods Sold

• Net Sales + Cost of Goods Sold

• Net Sales - Cost of Goods Sold

Which statement is prepared to show the cost of goods sold and gross profit?

• Income Statement

• Statement of Financial Position

• Statement of Cash Flows

• Statement of Changes in Equity

What accounts are used under the periodic system to record purchases of inventory?

• Sales, Sales returns, Sales discounts

• Purchases, Freight-in (Transportation-in), Purchase returns, Purchase discounts

• Accounts Receivable, Accounts Payable, Cash, Inventory

• Accumulated Depreciation, Retained Earnings, Prepaid Expenses, Common Stock

What is the main characteristic of a merchandising business?

• It only sells goods purchased from manufacturers

• It manufactures products for sale

• It buys and sells goods in their original form without further processing

• It provides services to customers