PA_ Week 5_Ch05_Accounting-for-Merchandising-Operations

The primary source of revenue for a merchandising company results from performing services for customers.

• True

• False

The operating cycle of a service company is usually shorter than that of a merchandising company.

• True

• False

Sales revenue less cost of goods sold equals gross profit.

• True

• False

Ending inventory plus the cost of goods purchased equals cost of goods available for sale.

• True

• False

In a perpetual inventory system, a return of defective merchandise by a purchaser is recorded by crediting:

• Purchases

• Purchase Returns

• Purchase Allowance

• Inventory

In a perpetual inventory system, a return of defective merchandise by a purchaser is recorded by crediting:

• Purchases

• Purchase Returns

• Purchase Allowance

• Inventory

Credit terms may permit buyer to claim a cash discount for prompt payment. Example: Credit terms 2/10, n/30. Advantages:

• Purchaser saves money

• Seller shortens operating cycle by converting accounts receivable into cash earlier

Should Discounts Be Taken When Offered?

On September 5, De La Hoya Company buys merchandise on account from Junot Diaz Company. The purchase price of the goods paid by De La Hoya is $1,500, and the cost to Diaz Company was $800. On September 8, De La Hoya returns defective goods with a selling price of $200. Record the transactions on the books of De La Hoya Company.

The cost of goods sold is determined and recorded each time a sale occurs in:

• periodic inventory system only.

• a perpetual inventory system only.

• both a periodic and perpetual inventory system.

• neither a periodic nor perpetual inventory system.