Inventory Accounting Systems Quiz
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Inventory Accounting Systems Quiz

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@MesmerizingRose69

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Questions and Answers

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?

  • Sales
  • Inventory (correct)
  • Cost of Goods Sold
  • All of the above

    • 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?

    <p>FOB Shipping Point</p> Signup and view all the answers

    What document serves as authorization for the seller to deliver goods?

    <p>Purchase Order</p> Signup and view all the answers

    What continuous record type keeps track of inventory quantities?

    <p>Perpetual Inventory</p> Signup and view all the answers

    What does the operating cycle of a merchandising business involve?

    <p>Purchasing merchandise, selling the merchandise and collecting payment</p> Signup and view all the answers

    In the Perpetual Inventory System, what does a purchase return record involve?

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

    Which account is specific to a merchandising entity and not found in a service entity?

    <p>Sales Returns and Allowances</p> Signup and view all the answers

    When transportation costs are advanced by the seller under FOB Shipping Point, how does the seller record these costs?

    <p>Account Receivable</p> Signup and view all the answers

    What is the term for the excess of net sales over the cost of goods sold?

    <p>Gross Profit</p> Signup and view all the answers

    Which financial statement component differentiates a merchandising entity from a service entity?

    <p>Inclusion of merchandise inventory as a current asset</p> Signup and view all the answers

    What does the Post-Closing Trial Balance represent?

    <p>Balances of all accounts after adjustments</p> Signup and view all the answers

    Which statement would not be found in the Statement of Changes in Equity?

    <p>Owner's Initial Capital Balance</p> Signup and view all the answers

    Which of the following is not a transaction relating to operating expenses?

    <p>Interest Expense</p> Signup and view all the answers

    When does merchandise inventory become part of Cost of Goods Sold?

    <p>When inventory is sold</p> Signup and view all the answers

    Which term does not mean the same as the others?

    <p>Bottom Line</p> Signup and view all the answers

    Which of the following is not a merchandising entity?

    <p>Car Wash</p> Signup and view all the answers

    Which transportation arrangement transfers ownership to the buyer only upon receipt of the merchandise?

    <p>FOB Destination</p> Signup and view all the answers

    What is the normal balance of Purchases?

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

    Which is the correct journal entry for purchasing inventory on account?

    <p>Debit – Inventory, Credit – Accounts Payable</p> Signup and view all the answers

    What is the normal balance of Sales Returns and Allowances?

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

    Under the Periodic Inventory System, how should the sale of merchandise costing P8,000 for P10,000 be recorded?

    <p>Debit – Account Receivable 10,000, Credit – Sales 10,000</p> Signup and view all the answers

    Which system reduces the amount of clerical work?

    <p>Periodic Inventory System</p> Signup and view all the answers

    What system responds to customer inquiries about product availability?

    <p>Perpetual Inventory System</p> Signup and view all the answers

    What is the normal balance of an expense account?

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

    Which inventory system does not allow for real-time inventory counts?

    <p>Periodic Inventory</p> Signup and view all the answers

    What account represents the liability when a buyer agrees to pay for accepted goods or services?

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

    When a business entity receives payment before delivering goods, how is the unearned revenue account impacted?

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

    Which type of account experiences a decrease with a credit entry?

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

    In a Perpetual Inventory System, how is the Merchandise Inventory affected when a customer returns merchandise?

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

    What does FOB stand for in freight terms?

    <p>Free On Board</p> Signup and view all the answers

    Under the perpetual inventory system, where do companies record purchases of merchandise for sale?

    <p>Inventory account</p> Signup and view all the answers

    If the seller is to shoulder the cost of delivery, what term is used?

    <p>FOB Destination</p> Signup and view all the answers

    Sales Returns and Allowances is considered a contra asset account to Sales Revenue. What does this indicate?

    <p>It decreases the total revenue</p> Signup and view all the answers

    What is the term for the excess of Gross Profit over the Operating Expense?

    <p>Operating Profit</p> Signup and view all the answers

    How does the chart of accounts for a merchandising entity differ from that of a service entity?

    <p>Merchandising entities have additional inventory accounts</p> Signup and view all the answers

    Under the periodic inventory system, what happens when merchandise purchased on account is paid?

    <p>Accounts Payable is credited</p> Signup and view all the answers

    In a perpetual inventory system, what happens when merchandise purchased on account is paid?

    <p>Cash is credited</p> Signup and view all the answers

    What is the correct entry to record the return of goods from a customer?

    <p>Credit to Sales Returns and Allowances</p> Signup and view all the answers

    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.

    • 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.

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