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Business Types and Corporation Fundamentals
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Business Types and Corporation Fundamentals

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@FeatureRichHazel

Questions and Answers

What are goods that a business purchases in order to sell called?

  • Merchandise (correct)
  • Supplies
  • Inventory
  • Assets

    • What is a merchandising business?

    A business that purchases and resells goods.

    Define a retail merchandising business.

    A merchandising business that sells to those who use or consume goods.

    What is a wholesale merchandising business?

    <p>A business that buys and resells merchandise primarily to other merchandising businesses.</p> Signup and view all the answers

    What does the term 'corporation' refer to?

    <p>An organization with the legal rights of a person which many persons or other corporations may own.</p> Signup and view all the answers

    What is capital in a business context?

    <p>The assets or financial resources available to a business.</p> Signup and view all the answers

    What is a share of stock?

    <p>Each unit of ownership in a corporation.</p> Signup and view all the answers

    Who is a stockholder?

    <p>The owner of one or more shares of stock.</p> Signup and view all the answers

    What is capital stock?

    <p>The total shares of ownership in a corporation.</p> Signup and view all the answers

    What are Articles of Incorporation?

    <p>A legal document that identifies basic characteristics of a corporation.</p> Signup and view all the answers

    What is a charter in a business context?

    <p>The legal rights for a business to conduct operations as a corporation.</p> Signup and view all the answers

    What does the term vendor refer to?

    <p>A business from which merchandise, supplies, or other assets are purchased.</p> Signup and view all the answers

    What is a subsidiary ledger?

    <p>A ledger that is summarized in a single general ledger account.</p> Signup and view all the answers

    What is an accounts payable ledger?

    <p>A subsidiary ledger containing vendor accounts.</p> Signup and view all the answers

    What is a controlling account?

    <p>An account in a general ledger that summarizes all accounts in a subsidiary ledger.</p> Signup and view all the answers

    Define inventory.

    <p>A list of assets, usually containing the value of individual items.</p> Signup and view all the answers

    What is merchandise inventory?

    <p>The goods a business has on hand for sale to customers.</p> Signup and view all the answers

    What is perpetual inventory?

    <p>An inventory determined by keeping a continuous record of increases, decreases, and the balance on hand of each item of merchandise.</p> Signup and view all the answers

    What is periodic inventory?

    <p>A merchandise inventory evaluated at the end of a fiscal period.</p> Signup and view all the answers

    What is physical inventory?

    <p>When a periodic inventory is conducted by counting, weighing, or measuring items of merchandise on hand.</p> Signup and view all the answers

    Define the cost of merchandise.

    <p>The amount a business pays for goods it purchases to sell.</p> Signup and view all the answers

    What is a requisition?

    <p>A form requesting the purchase of merchandise.</p> Signup and view all the answers

    What is a purchase order?

    <p>A form requesting that a vendor sell merchandise to a business.</p> Signup and view all the answers

    What is a special journal?

    <p>A journal used to record only one kind of transaction.</p> Signup and view all the answers

    What does purchase on account mean?

    <p>A transaction in which the items purchased are to be paid for later.</p> Signup and view all the answers

    What is a purchases journal?

    <p>A special journal used to record only purchases of merchandise on account.</p> Signup and view all the answers

    What is a special amount column?

    <p>A journal amount column headed with an account title.</p> Signup and view all the answers

    What is a purchase invoice?

    <p>An invoice used as a source document for recording a purchase on account transaction.</p> Signup and view all the answers

    What are terms of sale?

    <p>An agreement between a buyer and a seller about payment for merchandise.</p> Signup and view all the answers

    What does due date mean in a business transaction?

    <p>The date by which an invoice must be paid.</p> Signup and view all the answers

    What is a cash payments journal?

    <p>A special journal used to record only cash payment transactions.</p> Signup and view all the answers

    What is list price?

    <p>The retail price listed in a catalog or on an Internet site.</p> Signup and view all the answers

    Define trade discount.

    <p>A reduction in the list price granted to a merchandising business.</p> Signup and view all the answers

    What is net price?

    <p>The price after the trade discount has been deducted from the list price.</p> Signup and view all the answers

    What is a cash discount?

    <p>A deduction that a vendor allows on an invoice amount to encourage prompt payment.</p> Signup and view all the answers

    What is a general amount column?

    <p>A journal amount column that is not headed with an account title.</p> Signup and view all the answers

    What is a discount period?

    <p>The period of time during which a customer may take a cash discount.</p> Signup and view all the answers

    What is a purchases discount?

    <p>When a company that has purchased merchandise on account takes a cash discount.</p> Signup and view all the answers

    Define contra account.

    <p>An account that reduces a related account on a financial statement.</p> Signup and view all the answers

    What is a credit limit?

    <p>The maximum outstanding balance allowed to a customer by a vendor.</p> Signup and view all the answers

    What is a schedule of accounts payable?

    <p>A listing of vendor accounts, account balances, and the total amount due to all vendors.</p> Signup and view all the answers

    A corporation can incur liabilities but cannot own property.

    <p>False</p> Signup and view all the answers

    The articles of incorporation typically include the name and address of the business, its purpose for operating, any limitations on its activities and rules for dissolving the corporation.

    <p>True</p> Signup and view all the answers

    Unlike a proprietorship, a corporation exists independent of its owners.

    <p>True</p> Signup and view all the answers

    The total of accounts in the accounts payable ledger equals the balance of the controlling account, Accounts Payable.

    <p>True</p> Signup and view all the answers

    The accounts payable ledger form contains the same columns as the general ledger except that it lacks a Debit Balance column.

    <p>True</p> Signup and view all the answers

    When a perpetual inventory system is used, purchases of merchandise are accounted for directly to Merchandise Inventory.

    <p>True</p> Signup and view all the answers

    The perpetual inventory is not easier to maintain than the periodic method. The perpetual method requires records of the quantity and cost of individual goods.

    <p>True</p> Signup and view all the answers

    When a periodic inventory system is used, the cost of merchandise is recorded to Purchases.

    <p>True</p> Signup and view all the answers

    The income statement of a merchandising business places Purchases in a section titled Cost of Goods Sold, separate from other expenses.

    <p>True</p> Signup and view all the answers

    A purchase invoice lists the quantity, the description, and the price of each item and shows the total amount of the purchase.

    <p>True</p> Signup and view all the answers

    A transaction to record merchandise purchased with a trade discount would include a credit to Merchandise Discount.

    <p>False</p> Signup and view all the answers

    When journalizing a cash payment for advertising expense, the vendor's name is not written in the Account Title column of the cash payments journal.

    <p>True</p> Signup and view all the answers

    When supplies are purchased for use in the business, the amount is recorded as a debit to Purchases.

    <p>False</p> Signup and view all the answers

    The terms of sale 2/15, n/30 mean that 2% of the invoice amount may be deducted if paid within 15 days of the invoice date or the total invoice amount must be paid within 30 days.

    <p>True</p> Signup and view all the answers

    The contra account Purchases Discount has a normal credit balance.

    <p>True</p> Signup and view all the answers

    The petty cash account Cash Short and Over is a permanent account.

    <p>False</p> Signup and view all the answers

    Exceeding a vendor's credit limit can cause a disruption in the company's ability to purchase merchandise.

    <p>True</p> Signup and view all the answers

    A journal is proved and ruled whenever a journal page is filled, and always at the end of a month.

    <p>True</p> Signup and view all the answers

    The total of the General amount columns of a cash payments journal are not posted to the general ledger.

    <p>True</p> Signup and view all the answers

    The total of an accounts payable trial balance should equal the total of Accounts Payable.

    <p>True</p> Signup and view all the answers

    What is the proper journal entry for purchasing merchandise on account from Walner Electric?

    <p>Debit: Purchases; Credit: Accounts Payable and Walner Electric.</p> Signup and view all the answers

    What is the journal entry for paying cash for rent?

    <p>Debit: Rent Expense; Credit: Cash.</p> Signup and view all the answers

    What is the journal entry when cash is paid to Triangle Suppliers for supplies?

    <p>Debit: Supplies; Credit: Cash.</p> Signup and view all the answers

    What is the journal entry for purchasing merchandise from Zaben Corp. for cash?

    <p>Debit: Purchases; Credit: Cash.</p> Signup and view all the answers

    What is the journal entry for paying cash on account to Walner Electric, less purchases discount?

    <p>Debit: Accounts Payable and Walner Electric; Credit: Cash and Purchases Discount.</p> Signup and view all the answers

    What is the journal entry for paying cash on account to Triangle Suppliers?

    <p>Debit: Accounts Payable and Triangle Suppliers; Credit: Cash.</p> Signup and view all the answers

    What is the journal entry for paying cash to replenish the petty cash fund?

    <p>Debit: Supplies and Miscellaneous Expense; Credit: Cash and Cash Short and Over.</p> Signup and view all the answers

    Study Notes

    Merchandise and Business Types

    • Merchandise refers to goods acquired by a business for resale.
    • A merchandising business engages in purchasing and reselling goods.
    • Retail merchandising businesses sell directly to consumers who use or consume the goods.
    • Wholesale merchandising businesses purchase goods with the intent to resell primarily to other businesses.

    Corporation Fundamentals

    • A corporation possesses legal rights similar to an individual and can be owned by multiple persons or entities.
    • Capital represents the assets or financial resources that a business utilizes.
    • Shares of stock denote units of ownership within a corporation.
    • Stockholders are individuals or entities that own one or more shares of stock.
    • Capital stock refers to the total number of shares issued by a corporation.
    • Articles of incorporation provide basic details about a corporation, including its name, purpose, and operational limitations.
    • A charter grants a corporation the legal authority to operate.

    Vendor and Ledger Concepts

    • Vendors are businesses from which merchandise or supplies are acquired.
    • A subsidiary ledger summarizes detailed accounts under a single general ledger account.
    • The accounts payable ledger specifically contains vendor accounts.
    • A controlling account consolidates all subsidiary ledger accounts into a single entry in the general ledger.

    Inventory Management

    • Inventory is an asset list that includes the valuation of individual items.
    • Merchandise inventory refers to goods available for sale to customers.
    • Perpetual inventory maintains continuous records of stock changes and current balance.
    • Periodic inventory assesses goods at the end of a financial period, while physical inventory involves a physical count of stock.

    Purchase Processes and Documentation

    • The cost of merchandise is the expense incurred to acquire goods for resale.
    • A requisition is a formal request for purchasing merchandise.
    • A purchase order is a document sent to a vendor to request merchandise.
    • Special journals are designated for recording specific transaction types, like purchases.
    • Transactions involving merchandise purchases on account entail future payment promises.

    Discounting and Payment Terms

    • The list price is the retail price found in catalogs or online.
    • Trade discounts reduce the list price for merchandising businesses.
    • Net price is the final price after applying any trade discounts.
    • Cash discounts incentivize prompt payment from purchasers.
    • Terms of sale detail payment conditions, typically expressed as a ratio and time frame.
    • Due dates specify when an invoice payment is required.

    Journal Types and Account Management

    • The cash payments journal is specifically for recording cash transactions.
    • The special amount column in journals is headed by an account title.
    • A purchases journal records all merchandise purchases made on account.
    • A purchase invoice serves as the basis for documenting account purchases.

    Account Balances and Transparency

    • The controlling account balance should match the total of accounts in the accounts payable ledger.
    • An account’s balance is verified to ensure correctness at month-end.
    • Temporary accounts, like Cash Short and Over, differ from permanent accounts in terms of reporting.
    • Exceeding a vendor's credit limit can hinder a business's ability to procure merchandise.

    Financial Transactions Examples

    • Purchase transactions on account and cash payments are recorded in respective journals, detailing debits and credits involved.
    • Examples provided show how to document specific transactions such as purchasing and paying for merchandise, reinforcing practical understanding.

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    Description

    This quiz covers essential concepts of merchandising and corporate structures. Learn about the differences between retail and wholesale businesses, as well as the basic rights and responsibilities of corporations. Understand capital, shares of stock, and articles of incorporation essential for business operations.

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