Basic Accounting

____ 1. Merchandise with a sales price of P500 is sold on account with term 2/10, n/30. The journal entry to record
the sale would include a
a. Debit to Accounts Receivable for P490
b. debit to Cash for P500
c. Credit to Sales for P500
d. Debit to Sales Discounts for P10
____ 2. Which account will be included in both service and merchandising companies closing entries?
a. Sales Returns and Allowances
b. Sales Discounts
c. Cost of Merchandise Sold
d. Sales
____ 3. If merchandise sold on account is returned to the seller, the seller may inform the customer of the details by
issuing a
a. debit memorandum
b. purchase invoice
c. sales invoice
d. credit memorandum
____ 4. Multiple-step income statements show
a. both gross profit and income from operations
b. gross profit but not income from operations
c. neither gross profit nor income from operations
d. income from operations but not gross profit
____ 5. Where are selling and administrative expenses found on the multi-step income statement?
a. before gross profit
b. after gross profit
c. after net income before expenses
d. after sales and before gross profit
____ 6. Using a perpetual inventory system, the entry to record the sale of merchandise on account includes a
a. credit to Merchandise Inventory
b. credit to Accounts Receivable
c. debit to Sales
d. debit to Merchandise Inventory
____ 7. If the seller is to pay the transportation costs of delivering merchandise, the delivery terms are stated as
a. FOB shipping point
b. FOB destination
c. FOB n/30
d. FOB seller
____ 8. Which of the following accounts has a normal credit balance?
a. Delivery Expense
b. Sales Returns and Allowances
c. Sales
d. Merchandise Inventory
____ 9. A chart of accounts for a merchandising business usually
a. is standardized by the IASB for all merchandising businesses
b. requires more accounts than does the chart of accounts for a service business
c. is the same as the chart of accounts for a service business
d. does not have a Cost of Merchandise Sold account if a perpetual inventory system is used
____ 10. The entry for April 10, 2017 would include?

1. P5,000 of merchandise inventory was ordered on April 2, 2017

2. P2,000 of this merchandise was received on April 5, 2017
3. On April 6, 2017, an invoice dated April 4, 2017, with terms of 2/10, net 30 for
P2,150 which included a P150 prepaid freight cost, was received.
4. On April 10, 2017, P500 of the merchandise was returned to the seller.

a. Credit to Accounts Payable P500

b. Credit to Merchandise Inventory P500
c. Debit to Merchandise Inventory P500
d. Debit to Purchases Returns P500
____ 11. Using a perpetual inventory system, the entry to record the purchase of P30,000 of merchandise on account
would include a
a. credit to Sales
b. credit to Merchandise Inventory
c. debit to Merchandise Inventory
d. debit to Sales
____ 12. Merchandise is sold for cash. The selling price of the merchandise is P2,000 and the sale is subject to a 5%
state sales tax. The journal entry to record the sale would include
a. A debit to Cash for P2,000.
b. A credit to Sales Tax Payable for P100.
c. A credit to Sales for P2,100.
d. None of the above.
____ 13. Apple Co sells merchandise on credit to Zea Co in the amount of P8,000. The invoice is dated on September
15 with terms of 1/15, net 45. If Zea Co. chooses not to take the discount, by when should the payment be
made?
a. October 15
b. September 25
c. October 30
d. September 30
____ 14. The proper journal entry to record the receipt of inventory purchased on account in a periodic inventory
system would be:
a. Jan 1: Inventory (250.00); Accounts Payable (250.00)
b. Jan 1: Office Supplies (250.00); Accounts Payable (250.00)
c. Jan 1: Purchases (250.00); Accounts Payable (250.00)
d. Jan 1: Purchases (250.00); Accounts Receivable (250.00)
____ 15. Generally, the revenue account for a merchandising business is entitled
a. Gross Profit
b. Net Sales
c. Gross Sales
 d. Sales
____ 16. When the perpetual inventory system is used, the inventory sold is debited to
a. merchandise inventory
b. sales
c. supplies expense
d. cost of merchandise sold
____ 17. The arrangements between buyer and seller as to when payments for merchandise are to be made are called
a. cash on demand
b. gross cash
c. credit terms
d. net cash
____ 18. Using a perpetual inventory system, the entry to record the return from a customer of merchandise sold on
account includes a
a. credit to Sales Returns and Allowances
b. debit to Merchandise Inventory
c. credit to Merchandise Inventory
d. debit to Cost of Merchandise Sold
____ 19. In credit terms of 1/10, n/30, the "1" represents the
a. number of days in the discount period
b. percent of the cash discount
c. number of days when the entire amount is due
d. full amount of the invoice
____ 20. What is the term applied to the excess of net revenue from sales over the cost of merchandise sold?
a. net income
b. gross profit
c. gross sales
d. income from operations
____ 21. When a buyer returns merchandise purchased for cash, the buyer may record the transaction using the
following entry
a. debit Cash; credit Sales Returns and Allowances
b. debit Merchandise Inventory; credit Cash
c. debit Sales Returns and Allowances; credit Cash
d. debit Cash; credit Merchandise Inventory
____ 22. What is the major difference between a periodic and perpetual inventory system?
a. All are correct.
b. Under the periodic inventory system, all adjustments such as purchases returns and
allowances and discounts are reconciled at the end of the month.
c. Under the periodic inventory system, the purchase of inventory will be debited to the
Purchases account
d. Under the periodic inventory system, no journal entry is recorded at the time of the sale of
inventory.
____ 23. The statement of retained earnings shows
a. only net income, beginning Capital Stock, and dividends
b. only net income/net loss, dividends, and beginning and ending retained earnings
c. only net income, beginning and ending retained earnings
 d. only total assets, beginning and ending retained earnings
____ 24. The proper journal entry to record the receipt of inventory purchased on account in a perpetual inventory
system would be:
a. Jan 1 Inventory (250.00); Accounts Payable (250.00)
b. Jan 1 Office Supplies (250.00); Accounts Payable (250.00)
c. Jan 1 Purchases (250.00); Accounts Receivable (250.00)
d. Jan 1 Purchases (250.00); Accounts Payable (250.00)
____ 25. Inventory shortage is recorded when
a. merchandise purchased from a seller is incomplete or short.
b. there is a difference between a physical count of inventory and inventory records.
c. merchandise is returned by a buyer.
d. merchandise is returned to a seller.
____ 26. Which of the following accounts will not be found on the Cost of Merchandise Sold section on the Income
Statement?
a. Merchandise Inventory
b. Sales Returns and Allowances
c. Purchases
d. Transportation In
____ 27. Which of the following accounts has a normal debit balance?
a. Accounts Payable
b. Sales Returns and Allowances
c. Sales
d. Interest Revenue
____ 28. Merchandise inventory is classified on the balance sheet as a
a. Long-Term Liability
b. Current Asset
c. Current Liability
d. Long-Term Asset
____ 29. The inventory system employing accounting records that continuously disclose the amount of inventory is
called
a. retail
b. periodic
c. physical
d. perpetual
____ 30. Orange Co. sold Red Co. merchandise on account FOB shipping point, 2/10, net 30, for P10,000. Orange
Co. prepaid the P200 shipping charge. Using the perpetual inventory system, which of the following entries
will Red Co. make if Red Co. pays within the discount period?
a. Accounts Payable-Orange Co., debit P10,200; Merchandise Inventory, debit P200; Cash,
credit P10,400
b. Accounts Payable-Orange Co., debit P10,000; Transportation In, credit P200; Cash, credit
P9,800
c. Accounts Payable-Orange Co., debit P10,000; Transportation In, debit P200; Cash, credit
P10,200
d. Accounts Payable-Orange Co., debit P10,200; Merchandise Inventory, credit P200; Cash,
credit P10,000
____ 31. When the perpetual inventory system is used, the inventory sold is shown on the income statement as
a. purchases
b. net purchases
c. cost of merchandise sold
d. purchases returns and allowances

Short Answer

32. What would be recorded as the cash payment if the invoice is paid within the discount period?

1. P5,000 of merchandise inventory was ordered on April 2, 2017

2. P2,000 of this merchandise was received on April 5, 2017
3. On April 6, 2017, an invoice dated April 4, 2017, with terms of 2/10, net 30 for
P2,150 which included a P150 prepaid freight cost, was received.
4. On April 10, 2017, P500 of the merchandise was returned to the seller.

33. What would be recorded as purchases discount if the invoice is paid within the discount period?

1. P5,000 of merchandise inventory was ordered on April 2, 2017

2. P2,000 of this merchandise was received on April 5, 2017
3. On April 6, 2017, an invoice dated April 4, 2017, with terms of 2/10, net 30 for
P2,150 which included a P150 prepaid freight cost, was received.
4. On April 10, 2017, P500 of the merchandise was returned to the seller.

34. what is the amount of cost of merchandise sold?

Purchases P28,000 Purchases discounts P800

Merchandise inventory April 1 6,500 Merchandise inventory April 30 7,800
Sales returns and allowances 750 Sales 57,000
Purchases returns and
allowances 1,000 Transportation In 880

35. A company, using the periodic inventory system, has merchandise inventory costing P140 on hand at the
beginning of the period. During the period, merchandise costing P400 is purchased. At year-end, merchandise
inventory costing P180 is on hand. The cost of merchandise sold for the year is

36. A company using the periodic inventory system has the following account balances: Merchandise Inventory
at the beginning of the year, P4,000; Transportation-In, P450; Purchases, P12,000; Purchases Returns and
Allowances, P2,300; Purchases Discounts, P220. The cost of merchandise purchased is equal to

37. What is the amount of merchandise available for sale?

Purchases P28,000 Purchases discounts P800

Merchandise inventory April 1 6,500 Merchandise inventory April 30 7,800
Sales returns and
allowances 750 Sales 57,000
Purchases returns and
allowances 1,000 Transportation In 880
38. what is the amount of gross profit?
Purchases P28,000 Purchases discounts P800
Merchandise inventory April 1 6,500 Merchandise inventory April 30 7,800
Sales returns and
allowances 750 Sales 57,000
Purchases returns and
allowances 1,000 Transportation In 880

39. Silver Co. sold merchandise to Bronze Co. on account, P23,000, terms 2/15, net 45. The cost of the
merchandise sold is P18,500. Silver Co. issued a credit memorandum for P2,500 for merchandise returned
that originally cost P1,900. The Bronze Co. paid the invoice within the discount period. What is amount of net
sales from the above transactions?

40. what is the amount of net sales?

Purchases P28,000 Purchases discounts P800

Merchandise inventory April 1 6,500 Merchandise inventory April 30 7,800
Sales returns and
allowances 750 Sales 57,000
Purchases returns and Transportation In
allowances 1,000 880
Basic Accounting
Answer Section

MULTIPLE CHOICE

1. ANS: C DIF: 2 TOP: Merchandising Business

2. ANS: D DIF: 1 TOP: Merchandising Business
3. ANS: D DIF: 1 TOP: Merchandising Business
4. ANS: A DIF: 2 TOP: Merchandising Business
5. ANS: B DIF: 2 TOP: Merchandising Business
6. ANS: A DIF: 1 TOP: Merchandising Business
7. ANS: B DIF: 1 TOP: Merchandising Business
8. ANS: C DIF: 1 TOP: Merchandising Business
9. ANS: B DIF: 2 TOP: Merchandising Business
10. ANS: B DIF: 3 TOP: Merchandising Business
11. ANS: C DIF: 1 TOP: Merchandising Business
12. ANS: B DIF: 2 TOP: Merchandising Business
13. ANS: C DIF: 2 TOP: Merchandising Business
14. ANS: C DIF: 2 TOP: Merchandising Business
15. ANS: D DIF: 1 TOP: Merchandising Business
16. ANS: D DIF: 1 TOP: Merchandising Business
17. ANS: C DIF: 1 TOP: Merchandising Business
18. ANS: B DIF: 1 TOP: Merchandising Business
19. ANS: B DIF: 1 TOP: Merchandising Business
20. ANS: B DIF: 1 TOP: Merchandising Business
21. ANS: D DIF: 2 TOP: Merchandising Business
22. ANS: A DIF: 2 TOP: Merchandising Business
23. ANS: B DIF: 2 TOP: Merchandising Business
24. ANS: A DIF: 1 TOP: Merchandising Business
25. ANS: B DIF: 2 TOP: Merchandising Business
26. ANS: B DIF: 1 TOP: Merchandising Business
27. ANS: B DIF: 2 TOP: Merchandising Business
28. ANS: B DIF: 1 TOP: Merchandising Business
29. ANS: D DIF: 1 TOP: Merchandising Business
30. ANS: D DIF: 3 TOP: Merchandising Business
31. ANS: C DIF: 1 TOP: Merchandising Business

SHORT ANSWER

32. ANS:
1,620

DIF: 3 TOP: Merchandising Business

33. ANS:
30
 DIF: 3 TOP: Merchandising Business
34. ANS:
25,780

DIF: 3 TOP: Merchandising Business

35. ANS:
360

DIF: 3 TOP: Merchandising Business

36. ANS:
9,930

DIF: 3 TOP: Merchandising Business

37. ANS:
33,580

DIF: 3 TOP: Merchandising Business

38. ANS:
30,470

DIF: 3 TOP: Merchandising Business

39. ANS:
20,090

DIF: 3 TOP: Merchandising Business

40. ANS:
56,250

DIF: 2 TOP: Merchandising Business