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CHAPTER 6 T/F

The ending merchandise inventory for 2007 is the same as the beginning merchandise inventory for 2008.
true
A seller may grant a buyer a reduction in selling price and this is called a sales allowance.
true
Comparing the merchandise entries for the seller and the buyer, the seller is required to record more entries for the same transactions than the buyer.
true
Income that cannot be associated definitely with operations, such as a gain from the sale of a fixed asset, is listed as Other Income on the multiple-step income statement.
true
In a perpetual inventory system, merchandise returned to vendors reduces the merchandise inventory account.
true
When companies use a perpetual inventory system, the recording of the purchase of inventory will include a debit to purchases.
false
Under the periodic inventory system, the cost of goods sold is equal to the beginning merchandise inventory plus the cost of goods purchased plus the ending merchandise inventory.
false
A sale of $600 on account, subject to a sales tax of 5%, would be recorded as an account receivable of $600.
false
In a computerized accounting system, special journals may be replaced by electronic forms that capture the necessary information.
true
In a multi-step income statement the dollar amount for income from operations is always the same as net income.
false
The form of the balance sheet in which assets, liabilities, and owner’s equity are presented in a downward sequence is called the report form.
true
Cost of merchandise sold is the amount that the merchandising company pays for the merchandise it intends to sell.
false
When a large quantity of merchandise is purchased, a reduction allowed on the sale price is called a trade discount.
true
Other income and expenses are items that are not related to the primary operating activity.
true
In a perpetual inventory system, the Merchandise Inventory account is only used to reflect the beginning inventory.
false
In many retail businesses, inventory is the largest current asset.
true
The abbreviation FOB stands for Free On Board.
true
On the income statement in the single-step form, the total of all expenses is deducted from the total of all revenues.
true
When a merchandising business is compared to a service business, the financial statement that is not affected by that change is the Statement of Owner’s Equity.
true
he cost of merchandise inventory is limited to the purchase price less any purchase discounts.
false
Discounts taken by the buyer for early payment of an invoice are credited to Cash Discounts by the buyer.
false
Most companies will not take a purchases discount, because 1% or 2% discounts are insignificant.
false
Closing entries for a merchandising business are not similar to those for a service business.
false
When the seller offers a sales discount, even if borrowing has to be done, it is generally advantageous for the buyer to pay within the discount period.
true
Merchandise Inventory normally has a debit balance
true
When the terms of sale are FOB shipping point, the buyer should pay the transportation charges.
true
Under a periodic inventory system, the merchandise on hand at the end of the year is determined by a physical count of the inventory.
true
If payment is due by the end of the month in which the sale is made, the invoice terms are expressed as n/30.
false
A deduction allowed to wholesalers and retailers from the price of merchandise listed in catalogs is called cash discounts.
false
A business using the perpetual inventory system, with its detailed subsidiary records, does not need to take a physical inventory.
false
Merchandise is sold for $4,500, terms FOB destination, 2/10, n/30, with prepaid transportation costs of $250. If $800 of the merchandise is returned prior to payment and the invoice is paid within the discount period, the amount of the sales discount is $79.
false
Title to merchandise shipped FOB shipping point passes to the buyer upon delivery of the merchandise to the buyer’s place of business.
false
Net sales is equal to sales minus cost of merchandise sold.
false
Computerized systems can be used to capture accounting information such as accounts receivable, inventory items, accounts payable, and sales.
true
In a periodic inventory system, the cost of goods purchased includes the cost of transportation-in.
true
In the Merchandising Income Statement, sales will be reduced by sales discounts and sales returns and allowances to arrive at net sales.
true
One of the most important differences between a service business and a retail business is in what is sold.
true
In a perpetual inventory system, when merchandise is returned to the seller, Cost of Merchandise Sold is one of the accounts debited to record the transaction.
true
Sales to customers who use bank credit cards, such as MasterCard and VISA, are generally treated as credit sales.
false
Purchases of merchandise are typically credited to the merchandise inventory account under the perpetual inventory system.
false
Gross profit minus selling expenses equals net income.
false
Under the perpetual inventory system, a company purchases merchandise on terms 2/10, n/30. If payment is made within 10 days of the purchase, the entry to record the payment will include a credit to Cash and a credit to Purchase Discounts.
false
The adjusting entry to record inventory shrinkage would generally include a debit to Cost of Merchandise Sold.
true
When merchandise that was sold is returned, a credit to sales returns and allowances is made.
false
The seller records the sales tax as part of the sales amount.
false
If the perpetual inventory system is used, an account entitled Cost of Merchandise Sold is included in the general ledger.
true
Under the perpetual inventory system, when a sale is made, both the retail and cost values are recorded.
true
When merchandise is sold for $500 plus 5% sales tax, the Sales account should be credited for $525.
false
Transportation In is the amount paid by the company to deliver merchandise sold to a customer.
false
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.
true
Sales Returns and Allowances is a contra-revenue account.
true
Under the perpetual inventory system, the cost of merchandise sold is recorded when sales are made.
true
If the ownership of merchandise passes to the buyer when the seller delivers the merchandise for shipment, the terms are stated as FOB destination.
false
The service fee that credit card companies charge retailers varies and is the primary reason why some businesses do not accept all credit cards.
true
In the periodic inventory system, purchases of merchandise for resale are debited to the Purchases account.
true
A buyer who acquires merchandise under credit terms of 1/10, n/30 has 30 days after the invoice date to take advantage of the cash discount.
false
The accounts Purchases, Purchases Returns and Allowances, Purchases Discounts, and Transportation In are found on the balance sheet.
false
Transportation-in is considered a cost of purchasing inventory.
true
Sellers and buyers are required to record trade discounts.
false
In a merchandise business, sales minus operating expenses equals net income.
false
If merchandise costing $2,500, terms FOB destination, 2/10, n/30, with prepaid transportation costs of $100, is paid within 10 days, the amount of the purchases discount is $50.
true
The ratio of net sales to assets measures how effectively a business is using its assets to generate sales.
true
The effect of a sales return and allowance is a reduction in sales revenue and a decrease in cash or accounts receivable.
true
Purchased goods in transit, shipped FOB destination, should be excluded from ending inventory.
true
Merchandise inventory account is found on the income statement.
false
Purchased goods in transit should be included in the ending inventory if the goods were shipped FOB shipping point.
true
Sales Discounts is a revenue account with a credit balance.
false
As inventory is sold in many retail businesses, the largest expense is created.
true
As we compare a merchandise business to a service business, the financial statement that changes the most is the Balance Sheet.
false
Retailers record all credit card sales as charge sales.
false
The seller may prepay the transportation costs even though the terms are FOB shipping point.
true
The buyer will include the sales tax as part of the cost of merchandise purchased.
true
If the buyer bears the transportation costs related to a purchase, the terms are said to be FOB destination.
false
The chart of accounts for a merchandise business would include an account called Delivery Expense.
true
Service businesses provide services for income, while a merchandising business sells merchandise.
true

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