1. In comparing the accounts of amerchandising companywith those of aservice company, what additional accounts would the merchandising company likely use, assuming it employs a perpetual inventory system? When listing the account names, indicate if it appears on theIncome Statementor on theBalance Sheet.
2. Explain how a business can earn apositive gross profiton its sales and stillhave a net loss.
3. Distinguish betweencash discountsandtrade discounts. Is the amount of a trade discount on purchased merchandise recorded in the accounts?
4. Explain asales discountand apurchase discount.
5. Which party (buyer/seller) records aDebit memorandumand which party (buyer/seller) records aCredit memorandum? Does the maker of a debit memorandum record a debit or a credit in the recipient's account? What entry (debit or credit) does the recipient record?
6. Explain the difference between thesingle-stepandmultiple-stepincome statement formats. Which format contains a line item showingGross Profit?