316 | Basic Financial Accounting and Reporting 2021 Edition by Prof. WIN Ballada NAME: SCORE: SECTION: PROFESSOR: True or False 1. The chart of accounts for a merchandising entity differs from that of a service entity 2. The difference between revenues from sales and cost of sales is operating income, 3. For cash sales, the operating cycle is from cash to inventory to accounts receivable and back to cash. 4. The bill of lading is a document prepared by the seller detailing the terms of delivery. 5. A validated deposit slip indicates that cash and checks were actually deposited. 6. Discounts offered to the buyer to encourage early payment are trade discounts. 7. Cash discounts are called purchases discounts from the buyer's viewpoint. 8. The sales discounts account is a contra-income account and will have a debit balance. 9. A credit term of "2/10, n/30" means that the buyer may deduct 2% from the invoice if payment is made within 10 days from the end of the month. 10. Purchases returns and allowances is a deduction from purchases. 11. The cost of merchandise purchased during the period is determined by subtracting from the net purchases the amount of transportation costs incurred during the period. 12. The purchase of equipment not for resale should be debited to the purchases account. 13. If the seller is to shoulder the cost of delivery, the term is stated as F.O.B. destination. 14. The term freight prepaid or collect will dictate who shoulders the transportation costs. 15. The two main systems for accounting for merchandise are periodic and perpetual. 16. The perpetual inventory system requires recording the cost of each sale as it occurs. 17. There is no need for a physical inventory count in the perpetual inventory system. 18. The debit balance of the inventory account in the trial balance under the periodic inventory system is the amount of the inventory at the end of the current year. 19. The ending inventory of one period is the beginning inventory of the next period. 20. The balance in the merchandise inventory account at the beginning of the period represents the cost of the merchandise on hand at that time