Final Examination - RVA

Merchandising business is the same as the service business.

• True

• False

Merchandising companies earn income by buying and selling products or merchandise.

• True

• False

When this merchandise is sold, the revenue is reported as fees earned, and its cost is recognized as an expense called the cost of merchandise/goods sold.

• True

• False

The operating cycle begins with receiving cash from customers, and it ends with spending for the business.

• True

• False

A merchandising business must first purchase the merchandise for sale.

• True

• False

Which of the following accounts is used in merchandising but not in service?

• Depreciation expense

• Allowance for bad debts

• Sales return and allowances

• Freight-out

Which of the following is equal to gross profit plus the cost of sale?

• Beginning inventory

• Goods available for sale

• Ending inventory

• Sale

Which of the following is equal to fees earned plus operating expenses?

• Net Income

• Cost of sales

• Goods available for sale

• Gross profit

Statement 1: The operations of a service business involve the purchase of merchandise for sale (purchasing activity), the sale and distribution of the products to customers (sales activity).

Statement 2: Operating cycles differ, depending upon the nature of the business and its operations.

• Only statement 1 is correct.

• Only statement 2 is correct.

• Both statements are correct.

• Both statements are incorrect.

Statement 1: The revenue activities of a merchandising business involve providing services to customers.

Statement 2: When merchandise is sold, the revenue is reported as fees earned, and its cost is recognized as an expense called the cost of merchandise sold.

• Only statement 1 is correct.

• Only statement 2 is correct.

• Both statements are correct.

• Both statements are incorrect.