Exam 5: Accounting for Merchandising Businesses

Match each of the following terms a-h) with the correct definition below. -Inventory system that updates the merchandise inventory account for every purchase and sale transaction.

Which of the following accounts will only be found in the chart of accounts of a merchandising company?

Most companies will not take a purchase discount, because 1% or 2% discounts are insignificant.

The most important differences between a service business and a retail business are reflected in their operating cycles and financial statements. a. True b. False

As we compare a merchandising business to a service business, the financial statement that changes the most is the balance sheet.

If the buyer is to pay the freight costs of delivering merchandise, delivery terms are stated as

A deduction allowed to wholesalers and retailers from the price of merchandise listed in catalogs is called cash discounts.

Which of the following is not a difference between a retail business and a service business?

Under the perpetual inventory system, when a sale is made, both the sale and cost of merchandise sold are recorded.

Sales to customers who use bank credit cards, such as MasterCard and Visa, are generally treated as

Merchandise inventory is classified on the balance sheet as a

Merchandise with a list price of $4,700 is purchased on account, terms FOB shipping point, 1/10, n/30. The seller prepaid freight costs of $100. Prior to payment, $1,600 of the merchandise is returned. The invoice is paid within the discount period. Record the foregoing transactions of the buyer in the sequence indicated below, assuming a perpetual inventory system is used. a) Purchased the merchandise. b) Recorded receipt of the credit memo for merchandise returned. c) Paid the amount owed.

In a perpetual inventory system, the Merchandise Inventory account is only used to reflect the beginning inventory.

When merchandise is sold for $600 plus 6% sales tax, the Sales account should be credited for $636.

Match each of the following items a-h) with the appropriate definition below. -Expense account for recording shipping costs paid by the seller.

Sales to customers who use bank credit cards such as MasterCard and Visa are usually recorded by a

In the merchandising income statement, sales will be reduced by administrative expenses to arrive at operating income.

In a multiple-step income statement, the dollar amount for income from operations is always the same as net income.

Kaden Co. sells merchandise on credit to Jase Co. in the amount of $9,600. The invoice is dated on July 15 with terms of 1/15, net 45. If Jase Co. chooses not to take the discount, by when should the payment be made?

The single-step income statement is easier to prepare, but a criticism of this format is that gross profit and income from operations are not readily available.