Accounting Principles Quiz
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Questions and Answers

What is the formula for calculating net sales?

  • Gross sales + Sales Discounts + Sales Returns and allowances
  • Gross sales - Sales Discounts + Sales Returns and allowances
  • Gross sales + Sales Discounts - Sales Returns and allowances
  • Gross sales - Sales Discounts - Sales Returns and allowances (correct)

How is net purchases calculated?

  • Purchases + Purchase Discounts - Purchase Returns and Allowances
  • Purchases + Purchase Discounts + Purchase Returns and Allowances
  • Purchases - Purchase Discounts - Purchase Returns and Allowances (correct)
  • Purchases - Purchase Discounts + Purchase Returns and Allowances

What is included in the calculation of the total cost of purchases?

  • Purchases - Transportation-In
  • Purchases + Transportation-In
  • Net purchases - Transportation-In
  • Net purchases + Transportation-In (correct)

Which of the following is the correct formula for calculating the cost of goods sold under a periodic inventory system?

<p>Beginning inventory + Total cost of purchase - Ending inventory (C)</p> Signup and view all the answers

How is gross profit calculated?

<p>Net sales - Cost of goods sold (C)</p> Signup and view all the answers

What is the formula to calculate net income?

<p>Gross profit - operating expenses (B)</p> Signup and view all the answers

In a periodic inventory system, when is the cost of goods sold determined?

<p>At the end of the accounting period (A)</p> Signup and view all the answers

Referencing the provided Income Statement, what was the amount of total cost of purchase?

<p>$266,000 (B)</p> Signup and view all the answers

What is the primary purpose of a worksheet in the context of a merchandising company?

<p>To assist in preparing adjusting and closing entries and financial statements. (C)</p> Signup and view all the answers

In the provided trial balance of Hard Works, which account is mentioned as the only account that still needs adjustment at the end of the period?

<p>Merchandise Inventory (C)</p> Signup and view all the answers

What is the value of the merchandise on hand at the end of the period, based on the physical inventory?

<p>Birr 10,000 (C)</p> Signup and view all the answers

What does the 'Transportation-In' account represent in the context of a merchandising company?

<p>Expenses incurred for the delivery of goods from suppliers (A)</p> Signup and view all the answers

What is the total amount of sales returns and allowances recorded?

<p>Birr 20 (D)</p> Signup and view all the answers

Which of the following accounts is considered a contra-revenue account?

<p>Sales Discounts (B)</p> Signup and view all the answers

What is the total amount of purchase discounts recorded?

<p>Birr 82 (C)</p> Signup and view all the answers

How is 'Yibeltal, Drawings' classified in the trial balance?

<p>A contra-equity account (C)</p> Signup and view all the answers

Under FOB Destination terms, who is responsible for paying the transportation costs?

<p>The seller, as goods are considered free on board at the destination. (B)</p> Signup and view all the answers

Under FOB Shipping Point terms, who is responsible for paying the transportation costs?

<p>The buyer, upon reaching the destination (their place). (C)</p> Signup and view all the answers

If merchandise is purchased with terms 'FOB shipping point,' how are the transportation costs incurred by the buyer recorded?

<p>In a separate 'Transportation-In' account which increases the cost of the merchandise. (A)</p> Signup and view all the answers

IKA Company purchased goods worth Birr 85,000 on account, with terms 2/10, n/60 FOB shipping point. They also paid Birr 1,500 for transportation. What is the total amount recorded for merchandise and transportation at the time of purchase?

<p>Birr 86,500 (D)</p> Signup and view all the answers

When goods are sold under 'FOB Destination', who records the transportation?

<p>The seller records transportation cost as a transportation expense. (C)</p> Signup and view all the answers

IKA company sold goods for Birr 135,000, terms 1/15, n/EOM, FOB Destination. It also paid Birr 800 in transportation. How does this affect the seller?

<p>Increases transportation expenses (B)</p> Signup and view all the answers

The terms '2/10, n/60' imply a discount. What is the discount in percentage, and within how many days must the buyer pay to receive discount?

<p>2% discount within 10 days (A)</p> Signup and view all the answers

If the transportation cost is Birr 1,500 and the terms are FOB shipping point, when does the buyer record the transportation cost in comparison to the time the seller records the initial sale?

<p>The buyer records after the sale has been recorded by the seller and after the goods reach their destination (B)</p> Signup and view all the answers

What is the typical meaning of '2/10, n/EOM'?

<p>2% discount if paid within 10 days, the full amount is due by the end of the month of sale. (B)</p> Signup and view all the answers

What does 'n/60' signify in payment terms?

<p>Payment is due within 60 days, without any discount offered. (C)</p> Signup and view all the answers

A customer pays an invoice of $120,000 within the discount period specified as 1/10, n/EOM. What amount will be collected?

<p>$119,800 (A)</p> Signup and view all the answers

A sales return is recorded. Which of the following accounts is NOT likely to be affected?

<p>Accounts Payable (B)</p> Signup and view all the answers

On Feb 13, a customer paid $14,700 on an invoice of $15,000 where a 2% sales discount was in the terms. What journal entry will be recorded?

<p>Debit Cash $14,700, Debit Sales Discount $300, Credit Accounts Receivable $15,000 (C)</p> Signup and view all the answers

What does 'FOB shipping point' mean?

<p>The buyer owns the goods while the freight is in the shipping process as well as is responsible for all shipping costs. (C)</p> Signup and view all the answers

On Jan 17, a company recorded Sales Returns & Allowances of $250. Which other account would be affected by the journal entry?

<p>Accounts Receivable (A)</p> Signup and view all the answers

A company made a cash purchase of $43,000 on Jan 4. Which of the following journal entries correctly records this transaction?

<p>Debit Purchase $43,000, Credit Cash $43,000 (C)</p> Signup and view all the answers

Which of the following is NOT a key objective of an internal control system?

<p>To evaluate employee satisfaction (B)</p> Signup and view all the answers

Which practice is recommended for internal control over cash?

<p>Making disbursements by serially numbered checks only upon proper authorization. (A)</p> Signup and view all the answers

What does a 'debit memo' from a bank typically indicate?

<p>A decrease in the company's cash balance. (B)</p> Signup and view all the answers

Which of these is a benefit of using bank accounts for cash control?

<p>The bank provides a separate accounting of cash. (B)</p> Signup and view all the answers

Why is monthly reconciliation of bank statements and book cash balance important?

<p>To confirm that the bank's balance and the company's records agree. (D)</p> Signup and view all the answers

What is the aim of using serially numbered checks for cash disbursement?

<p>To ensure every transactions are documented. (C)</p> Signup and view all the answers

What is the primary purpose of a voucher system?

<p>To control the purchase and payment of goods and services. (B)</p> Signup and view all the answers

What does the term 'credit memo' indicate within the context of bank statements?

<p>An increase in the depositor's cash balance. (A)</p> Signup and view all the answers

What is the amount of the deposit made on January 31 that was not recorded by the bank?

<p>Br. 410.90 (C)</p> Signup and view all the answers

What is the total amount of outstanding checks according to the bank reconciliation?

<p>Br. 717.75 (A)</p> Signup and view all the answers

What was the balance per depositor's record before any bank reconciliation adjustments?

<p>Br. 4,262.83 (A)</p> Signup and view all the answers

According to the bank reconciliation, what is the amount of the note receivable collected by the bank?

<p>Br. 524.74 (D)</p> Signup and view all the answers

What is the total amount of deductions from the depositor's record?

<p>Br. 94.25 (A)</p> Signup and view all the answers

Which of the following journal entries correctly reflects the recording of the NSF check of Ron Co?

<p>Debit Accounts Receivable - Ron Co, Credit Cash (C)</p> Signup and view all the answers

What is the effect of a bank service charge on the depositor's adjusted cash balance?

<p>Decrease (C)</p> Signup and view all the answers

Which of these would be handled by a petty cash fund?

<p>Purchase of office supplies and postage stamps (D)</p> Signup and view all the answers

Flashcards

Gross Sales

The total amount of revenue earned from selling goods during a specific period, before deducting any discounts or returns.

Sales Discounts

Reductions given to customers for early payments or specific promotions.

Sales Returns & Allowances

The value of goods returned by customers due to various reasons like defects or dissatisfaction.

Net Sales

The final amount of revenue earned from selling goods after deducting sales discounts and returns.

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Total Cost of Goods Available for Sale

The cost of acquiring goods that are available for sale, including the initial purchase price, transportation costs, and any adjustments for discounts or returns.

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Ending Inventory

The value of unsold goods remaining at the end of a period.

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Gross Profit

The difference between net sales and cost of goods sold, representing the profit earned from selling goods before deducting operating expenses.

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Net Income

The final profit earned by a company after subtracting all operating expenses from gross profit.

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Worksheet

A financial document that assists in preparing adjusting and closing entries and contains all the information needed for preparing financial statements.

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FOB Destination

Indicates that the seller pays for the transportation costs of goods to the buyer's location. The buyer receives the goods without paying transportation charges.

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Physical Inventory

The process of physically counting and valuing all inventory on hand at a specific point in time.

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FOB Shipping Point

Indicates that the buyer pays for the transportation costs of goods from the seller's location to the buyer's location. The seller delivers the goods to the shipping carrier, and the buyer is responsible for the rest of the journey.

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Transportation-In

A separate account used to track the expenses incurred by a buyer for transporting purchased goods to their location. Only used when the buyer pays the transportation costs.

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Cost of Goods Available for Sale

The cost of goods available for sale during a period, calculated as Beginning Inventory + Purchases - Purchase Returns and Allowances - Purchase Discounts.

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Point of Transfer (in shipping)

The point at which ownership and responsibility for the goods transfer from the seller to the buyer. This is determined by the shipping terms, either FOB Destination or FOB Shipping Point.

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Cost of Goods Sold

The cost of goods that were actually sold during a period, calculated as Cost of Goods Available for Sale - Ending Inventory.

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Buyer Pays for Transportation

A term used in sales transactions to indicate that the buyer is responsible for paying for transportation costs. This is usually when the shipping terms are FOB Shipping Point.

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Seller Pays for Transportation

A term used in sales transactions to indicate that the seller is responsible for paying for transportation costs. This is usually when the shipping terms are FOB Destination.

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Sales Revenue

The total amount of sales revenue earned during a period.

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Cash Discount (e.g., 2/10, n/60)

A reduction in the price of goods offered to the buyer as an incentive for early payment. This is usually offered for a specific timeframe, for example, 2% discount for payment within 10 days.

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Selling Expenses

Expenses incurred in relation to selling goods, such as sales salaries, advertising, and delivery costs.

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Administrative Expenses

Expenses incurred in managing the overall operations of a business, such as administrative salaries, rent, and utilities.

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Net 60 (n/60)

This term indicates that the buyer is responsible for paying the invoice amount within the given timeframe, typically 60 days from the invoice date.

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Sales Discount Journal Entry

A journal entry to record a reduction in the amount owed by a customer due to a sales discount.

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Cash Receipt with Sales Discount

A journal entry to record the receipt of cash from a customer who has taken advantage of a sales discount.

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Sales Returns and Allowances

A customer's right to return goods or request an allowance for defective or unsatisfactory merchandise.

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Sales Returns and Allowances Journal Entry

An adjustment made to the account of a customer who has made a return or received an allowance for their purchase.

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Taking Advantage of Sales Discount

A customer pays within the discount period and receives a credit for the discount amount.

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Account Receivable (A/R)

A record of a sale on credit. This typically involves a customer's promise to pay in the future.

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What is an internal control system?

A set of procedures designed to protect assets, ensure accurate accounting records, and evaluate performance.

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Who should NOT handle cash disbursements?

These individuals should not be responsible for handling cash payments.

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What should be done with cash receipts immediately upon collection?

Cash receipts should be recorded and deposited promptly, not used for direct payments.

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How should cash disbursements be made?

Cash payments should be made through serially numbered checks, authorized by someone besides the check writer.

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What is bank reconciliation?

The process of ensuring that the bank's record of a company's cash balance matches the company's accounting records.

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Why are bank accounts important for cash control?

A bank account offers several advantages, including physical security for cash, a separate record of cash transactions, and convenient payment options for customers.

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What is a bank statement?

A document issued by a bank that summarizes transactions and balances for a period.

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What is a debit memo?

A record that describes a decrease in a depositor's cash balance; reflects a debit to the company's account.

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Adjusted cash balance

The difference between the bank statement balance and the depositor's cash balance is called adjusted cash balance.

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Outstanding checks

Outstanding checks are checks that have been written and recorded by the company but not processed and deducted by the bank yet.

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Deposits in transit

Deposits in transit are deposits that were recorded by the company but not yet credited by the bank.

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Collection fee

A collection fee is a bank charge for processing the collection of a note receivable.

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NSF check

A non-sufficient funds (NSF) check is a check that cannot be honored due to insufficient funds in the drawer's account.

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Bank service charge

A bank service charge is a fee charged by the bank for providing services to the customer.

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Petty cash fund

A petty cash fund is a small amount of cash kept on hand for minor expenses.

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What are common uses of a petty cash fund?

The petty cash fund is used to handle small, routine payments like employee transportation costs, office supplies, postage stamps, and delivery charges.

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Study Notes

Accounting for Merchandising Businesses

  • Merchandising businesses buy goods to resell to customers
  • These businesses sell tangible goods
  • They differ from service businesses in that they have inventory transactions (purchases and sales of merchandise)
  • The periodic inventory system updates the inventory account only at the end of a period
  • The perpetual inventory system updates the inventory account every time goods are bought or sold
  • A worksheet assists in preparing adjusting and closing entries and provides all information needed to prepare financial statements
  • Net sales= Gross sales - Sales Discounts - Sales Returns and Allowances
  • A trade discount is a percentage deduction from the listed price of merchandise
  • Cash discounts are deductions from invoice price to customers for early payment

Recording Purchases

  • Purchases account records the cost of goods bought for resale to customers
  • Purchase discounts are a deduction from the original purchase price if payment is made within a specified period

Recording Sales

  • When a merchandising company transfers goods to a buyer, revenue is generated
  • Sales revenue is recorded in a Sales account.
  • Net sales is the revenue amount after deducting sales discounts, sales returns and allowances

Sales Discounts

  • Sales discounts are deductions from invoice price to customers that make early payments
  • This encourages early payments for seller
  • Credit terms, such as 'n/30' or '2/10, n/30', detail payment amounts and possible discounts

Sales Returns and Allowances

  • Merchandise can be returned by customers for defects or other reasons
  • A sales return is a return of merchandise
  • A sales allowance is a deduction from the price when merchandise is retained
  • These transactions are recorded in a contra purchase account

Transportation Costs

  • Transportation costs increase the cost of merchandise
  • These costs are recorded in a separate account ('Transportation-In')
  • FOB destination: seller pays transportation costs
  • FOB shipping point: buyer pays transportation costs

Bank Reconciliations

  • Bank statements and company records may differ due to outstanding checks, deposits in transit, and service charges
  • Important for accurate cash control

Petty Cash

  • A petty cash fund is used for small payments
  • A designated employee is responsible for the fund
  • Reimbursed when the fund is low, with receipts attached
  • Recorded with debiting the appropriate accounts and creditting cash

Cash Short and Over

  • Differences between the recorded cash and actual cash can arise from errors
  • The 'Cash short and over' account reflects these differences
  • Debit when short, credit when over

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Test your knowledge on key accounting formulas and calculations. This quiz covers essential concepts such as net sales, cost of goods sold, gross profit, and more, specifically within the context of merchandising companies. Perfect for students studying accounting principles.

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