TRUE OR FALSE

Q 6

Goods available for sale can be defined as inventory.

Q 7

Goods that have been sold in a merchandising company are called cost of goods sold.

Q 8

Service revenue minus operating expenses equals gross profit.

Q 9

The operating expenses of a merchandising company will be different than the operating expenses of a service company.

Q 10

A periodic system of inventory will give the company much more control over their inventory.

Q 11

A perpetual inventory system makes it easier for the company to answer questions about the availability of merchandise.

Q 12

A physical count of the inventory system at year end is only required in the periodic system of inventory.

Q 13

In a periodic inventory system, detailed records of the goods on hand are kept throughout the period.

Q 14

A perpetual inventory system requires the company only determine the cost of goods sold at the end of the accounting period.

Q 15

In the perpetual system of inventory, when merchandise is purchased for resale to customers, the account Merchandise Inventory is debited.

Q 16

A quantity discount is a reduction in price according to the volume of the purchase.

Q 17

A quantity discount is the same as a purchase discount.

Q 18

Purchase discounts are offered to customers for the early payment of the balance due.

Q 19

Every seller offers purchase discounts.

Q 20

If sales terms are FOB destination, the buyer is responsible for getting the goods to their intended destination.

Q 21

FOB Shipping point means that the seller is responsible for the freight costs.

Q 22

If a company purchases goods FOB shipping point, the purchasing company will be responsible for the payment of the freight costs.

Q 23

Freight costs are always a cost to the purchasing company.

Q 24

When a company returns merchandise to its supplier under a perpetual inventory system, the inventory account will be debited.

Q 25

Under a perpetual inventory system, any freight which is incurred when purchasing the inventory is debited to the inventory account.

Q 26

In a perpetual system, there are 2 journal entries when making a sale of goods.

Q 27

The perpetual system requires a second journal entry, increasing cost of goods sold and decreasing merchandise inventory when goods are sold.

Q 28

A Sales Returns and Allowances account is only used in a perpetual inventory system.

Q 29

A large balance in the Sales Returns and Allowances account may indicate that the merchandise which is being sold is of inferior quality.

Q 30

The Sales Returns and Allowances account is a contra revenue account.

Q 31

The Sales Discount account is a contra revenue account.

Q 32

Sales discounts are only used in a perpetual inventory system.

Q 33

There are additional steps required in the accounting cycle for a merchandising company than for a service company.

Q 34

A single-step Income Statement is named because there is only one step in determining profit.

Q 35

A single-step Income Statement is only done when using the periodic inventory system.

Q 36

A single-step Income Statement is considered more useful because it provides a detailed breakdown of all the categories of expenses.