Podcast
Questions and Answers
Which type of merchandise is most commonly associated with the Periodic Inventory System?
Which type of merchandise is most commonly associated with the Periodic Inventory System?
- Low-priced, low-volume merchandise
- High-priced, low-volume merchandise
- Low-priced, high-volume merchandise (correct)
- High-priced, high-volume merchandise
Which account is exclusively used by merchandisers and not by service entities?
Which account is exclusively used by merchandisers and not by service entities?
- Sales
- Inventory (correct)
- Cost of Goods Sold
- All of the above
What are the two main inventory accounting systems?
What are the two main inventory accounting systems?
- Cash and Accrual
- Periodic and Perpetual (correct)
- Purchases and Sales
- Returns and Allowances
Which shipping term indicates that the buyer is responsible for shipping costs?
Which shipping term indicates that the buyer is responsible for shipping costs?
What document serves as authorization for the seller to deliver goods?
What document serves as authorization for the seller to deliver goods?
What continuous record type keeps track of inventory quantities?
What continuous record type keeps track of inventory quantities?
What does the operating cycle of a merchandising business involve?
What does the operating cycle of a merchandising business involve?
In the Perpetual Inventory System, what does a purchase return record involve?
In the Perpetual Inventory System, what does a purchase return record involve?
Which account is specific to a merchandising entity and not found in a service entity?
Which account is specific to a merchandising entity and not found in a service entity?
When transportation costs are advanced by the seller under FOB Shipping Point, how does the seller record these costs?
When transportation costs are advanced by the seller under FOB Shipping Point, how does the seller record these costs?
What is the term for the excess of net sales over the cost of goods sold?
What is the term for the excess of net sales over the cost of goods sold?
Which financial statement component differentiates a merchandising entity from a service entity?
Which financial statement component differentiates a merchandising entity from a service entity?
What does the Post-Closing Trial Balance represent?
What does the Post-Closing Trial Balance represent?
Which statement would not be found in the Statement of Changes in Equity?
Which statement would not be found in the Statement of Changes in Equity?
Which of the following is not a transaction relating to operating expenses?
Which of the following is not a transaction relating to operating expenses?
When does merchandise inventory become part of Cost of Goods Sold?
When does merchandise inventory become part of Cost of Goods Sold?
Which term does not mean the same as the others?
Which term does not mean the same as the others?
Which of the following is not a merchandising entity?
Which of the following is not a merchandising entity?
Which transportation arrangement transfers ownership to the buyer only upon receipt of the merchandise?
Which transportation arrangement transfers ownership to the buyer only upon receipt of the merchandise?
What is the normal balance of Purchases?
What is the normal balance of Purchases?
Which is the correct journal entry for purchasing inventory on account?
Which is the correct journal entry for purchasing inventory on account?
What is the normal balance of Sales Returns and Allowances?
What is the normal balance of Sales Returns and Allowances?
Under the Periodic Inventory System, how should the sale of merchandise costing P8,000 for P10,000 be recorded?
Under the Periodic Inventory System, how should the sale of merchandise costing P8,000 for P10,000 be recorded?
Which system reduces the amount of clerical work?
Which system reduces the amount of clerical work?
What system responds to customer inquiries about product availability?
What system responds to customer inquiries about product availability?
What is the normal balance of an expense account?
What is the normal balance of an expense account?
Which inventory system does not allow for real-time inventory counts?
Which inventory system does not allow for real-time inventory counts?
What account represents the liability when a buyer agrees to pay for accepted goods or services?
What account represents the liability when a buyer agrees to pay for accepted goods or services?
When a business entity receives payment before delivering goods, how is the unearned revenue account impacted?
When a business entity receives payment before delivering goods, how is the unearned revenue account impacted?
Which type of account experiences a decrease with a credit entry?
Which type of account experiences a decrease with a credit entry?
In a Perpetual Inventory System, how is the Merchandise Inventory affected when a customer returns merchandise?
In a Perpetual Inventory System, how is the Merchandise Inventory affected when a customer returns merchandise?
What does FOB stand for in freight terms?
What does FOB stand for in freight terms?
Under the perpetual inventory system, where do companies record purchases of merchandise for sale?
Under the perpetual inventory system, where do companies record purchases of merchandise for sale?
If the seller is to shoulder the cost of delivery, what term is used?
If the seller is to shoulder the cost of delivery, what term is used?
Sales Returns and Allowances is considered a contra asset account to Sales Revenue. What does this indicate?
Sales Returns and Allowances is considered a contra asset account to Sales Revenue. What does this indicate?
What is the term for the excess of Gross Profit over the Operating Expense?
What is the term for the excess of Gross Profit over the Operating Expense?
How does the chart of accounts for a merchandising entity differ from that of a service entity?
How does the chart of accounts for a merchandising entity differ from that of a service entity?
Under the periodic inventory system, what happens when merchandise purchased on account is paid?
Under the periodic inventory system, what happens when merchandise purchased on account is paid?
In a perpetual inventory system, what happens when merchandise purchased on account is paid?
In a perpetual inventory system, what happens when merchandise purchased on account is paid?
What is the correct entry to record the return of goods from a customer?
What is the correct entry to record the return of goods from a customer?
Study Notes
Inventory Accounting Systems
-
Periodic Inventory System - commonly used for low-priced, high-volume merchandise. Inventory is counted periodically and is calculated by adding purchases to the beginning inventory and subtracting cost of goods sold.
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Perpetual Inventory System - maintains a continuous record of the quantity of inventory on hand. Each purchase and sale transaction is recorded. Cost of Goods Sold is calculated each time a sale is made.
Merchandising Business
- Merchandising Company - Earns income by buying and selling goods.
- Merchandise Inventory - Goods held for sale by merchandisers.
- Operating Cycle - Purchasing merchandise, selling the merchandise, and collecting payment.
- Sales Returns and Allowances - Transactions where the seller either accepts goods back from the buyer or grants a reduction in the purchase price so the buyer will keep the goods.
Shipping Terms
- FOB Shipping Point - Buyer shoulders the shipping cost.
- FOB Destination - Seller shoulders the the shipping cost.
Key Accounts
- Purchases - The cost of purchased goods.
- Purchase Returns and Allowances - Reductions in the cost of goods purchased due to returns or allowances.
- Purchase Discounts - Reductions in the purchase price granted for early payment.
- Sales Returns and Allowances - Reductions in the sales revenue due to returns or allowances.
- Sales Discounts - Reductions in the sales price granted for early payment.
- Transportation In - Transportation costs incurred to bring purchased inventory to the business location.
- Transportation Out - Transportation costs incurred to deliver sold inventory to the customer.
Key Concepts
- Gross Profit - The excess of net sales over the cost of goods sold.
- Net Income - The excess of gross profit over operating expenses.
- Cost of Goods Sold - The cost of the inventory that is sold.
Accounts Payable
- Accounts Payable - Represents the amount owed to suppliers for purchases made on credit.
Financial Statements
- Balance Sheet - Reports the assets, liabilities, and owner's equity of a business at a specific point in time.
- Income Statement - Reports the revenues and expenses of a business over a period of time.
- Statement of Changes in Equity - Shows the changes in the owner's equity over a period of time.
Other Important Points
- Cycle Counting - A technique used to verify the accuracy of the perpetual inventory system.
- Purchase Order - An authorization made by the buyer to the seller to deliver the merchandise as detailed in the form.
- Invoice - A bill that is sent to the customer for goods or services.
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Description
Test your knowledge on different inventory accounting systems including periodic and perpetual methods. Explore key concepts related to merchandising business and shipping terms. This quiz covers essential definitions and operational cycles in inventory management.
