I.

MATCHING TYPE 1
Indicate the accounting term in part 1 that best described the statement in Part 2 by writing your
letter in the blank provided. WRITE LETTER ONLY. NO ERASURES
PART 1

A. Furniture and Fixtures B. Selling Expenses

C. Purchase Returns and Allowance D. Merchandise inventory , beginning
E. Goods available for sale F. Cash discount
G. Trade Discounts H. Freight in
I. Perpetual inventory system J. Purchases
K. FOB Destination L. FOB Shipping point
M. Administrative Expenses N. Merchandise inventory , ending
O. Freight Out P. Cost of goods delivered
Q. Gross income R. Net income
T. Sales Revenue S. Periodic inventory system
U Cost of Goods Sold

PART 2
1. Account title used for revenue earned when goods are delivered to customers. T
2. Stock of goods unsold the previous accounting period.
3. Represents transportation cost for goods bought which is added to the cost of the
merchandise purchased.
4. Operating expenses incurred in storing and marketing the goods available for sale.
5. This represents the cost to the seller of the goods delivered to the customers.
6. Discount granted to the customer at the time of sale which is based on the list price or
catalog price.
7. An account title representing cost of goods bought for resale by the company.
8. This is an account title used when buying tables, chairs and other furniture for use by the
company.A
9. A discount granted to a customer for paying his account promptly. F
10. Excess of net sales over cost of sales. Q
11. The sum of gross purchases and freight in.
12. A reduction in the cost of the goods purchased for resale when the goods are returned to
the supplier for being defective or spoiled. C
13. A freight term which requires the buyer to pay for the transportation of the goods from the
point of shipment to the buyer’s place. L
14. An account used to record transportation cost incurred by the seller. k
15. A method of accounting wherein the cost of the merchandise sold is determined only after
making a physical inventory count.S

MATCHING TYPE 2
Match the items below by entering the appropriate code letter in the space provided. WRITE THE
LETTER ONLY

A. Net Sales F. FOB shipping point

B. Sales discounts G. Freight-out
C. Purchase invoice H. Gross profit
D. Periodic inventory system I. Selling expenses
E. FOB destination J. Income from operations
______16. An incentive to encourage customers to pay their accounts early.
______17. Expenses associated with making sales.
______18. Freight terms that require the seller to pay the freight cost.
______19. Sales less sales returns and allowances and sales discounts.
______20. A document that supports each credit purchase.
______21. Net sales less cost of goods sold.
______22. Freight cost to deliver goods to customers reported as a selling expense.
______23. Requires a physical count of goods on hand to compute cost of goods sold.
______24. Gross profit less total operating expenses.
______25. Freight terms that require the buyer to pay the freight cost.

1
II. TRUE (T) – FALSE (F) STATEMENTS
1. Retailers and wholesalers are both considered merchandisers. T
2. Gross purchases are the sum of invoice cost of merchandise purchase plus purchases
less sales returns. T
3. A periodic inventory system requires a detailed inventory record of inventory items. F
4. Freight term of FOB Destination means that the seller pays the freight costs. T
5. Freight costs incurred by the seller on outgoing merchandise are an operating expense to
the seller. T
6. The Sales Returns and Allowances account and the Sales Discount account are both
classified as expense accounts.
7. The seller’s entry to record returns by a customer is debit Accounts Receivable and and credit
Sales Return and allowances.
8. Sales Allowances and Sales Discounts are both designed to encourage customers to pay
their accounts promptly.
9. Selling expenses relate to general operating activities such as personnel management.
10. Merchandise inventory is classified as a current asset in a classified balance sheet.
11. The gross profit section for a merchandising company appears on both the multiple-step
and single-step forms of an income statement.
12. Purchase Returns and Allowances and Purchase Discounts are subtracted from
Purchases to produce net purchases.
13. Freight-in is an account that is subtracted from the Purchases account to arrive at cost of
goods purchased.
14. Under a periodic inventory system, the acquisition of inventory is charged to the
Purchases account.
15.Under a periodic inventory system, freight-in on merchandise purchases should be charged to
the Inventory account.
16. Under periodic inventory system, detailed records of inventory purchases and sold are
maintained, eliminating the need to calculate the cost of goods sold.
17.The terms 2/10, n/30 state that a 2% discount is available if the invoice is paid within the first
10 days of the next month.
18. Sales returns and allowances and sales discounts are subtracted from sales in reporting
net sales in the income statement.
19. If a merchandiser sells land at more than its cost, the gain should be reported in the sales
revenue section of the income statement.
20. A seller would encourage prompt payment from the purchases by granting trade
discounts.
21. Cash discounts are offered by companies in order to encourage their customers to their
accounts promptly.
22. Trade discounts are offered by companies are treated in the same manner as cash
discounts.
23. FOB Shipping point means title passes at shipping point; the buyer shoulders the
transportation cost. T
24. A seller would encourage prompt payment from the purchases nby granting trade
discounts.
25. Net sales – Cost of Sales – Operating expenses is equal to Net income. T

III. MULTIPLE CHOICE QUESTIONS

____ 51. When a customer returns merchandise purchased on credit, the
a. customer should credit Accounts Payable.
b. seller should credit Sales Returns and Allowances.
c. customer should credit Accounts Receivable.
d. none of the above.

____52. Credit terms of 2/10, n/30 mean that

a. a 10% cash discount may be taken if payment is made immediately; a 2% discount
if paid within 30 days.
b. a 2% cash discount may be taken if payment is made within 10 days of the invoice
date; otherwise the full amount is due at the end of the month.
 c. an additional amount equal to 2% of the invoice price must be paid if payment is
not received within 10 days; the account is overdue after 30 days.
d. a 2% cash discount may be taken if payment is made within 10 days of the invoice
date; otherwise the full amount is due within 30 days.

____53. A periodic inventory system

a. allows for the determination of cost of goods sold after each sale.
b. traditionally has been used with low unit-value items.
c. requires that detailed inventory records be kept.
d. requires the use of a cost of goods sold account.

____54. In accordance with the revenue recognition principle, sales revenues are recorded
when
a. earned, which typically occurs when the goods are transferred from the seller to
the buyer.
b. cash is received from the customer for items already delivered.
c. an order is received from a customer with delivery of the product expected to take
place within the next 30 days.
d. the accountant determines which period's income statement "needs" more
revenue.
____55. Expenses that relate to such activities as personnel management, accounting, and
store security generally should appear in a multiple-step income statement in the
a. Cost of Goods Sold section.
b. Administrative Expenses section.
c. Nonoperating section.
d. Selling Expenses section.

____56. Which of the following accounts should appear in the Nonoperating section of a
multiple-step income statement?
a. Freight-out
b. Sales Discounts
c. Sales Returns and Allowances
d. Interest Expense

____57. Freight terms of FOB shipping point mean that the

a. buyer must bear the freight costs.
b. seller must debit freight out.
c. goods are placed free on board at the buyer's place of business.
d. seller must bear the freight costs.

____58. With regard to accounting for a merchandising company versus a service enterprise,
which of the following is false?
a. Additional accounts and entries are typically required for a merchandising
company.
b. Both retail and wholesale enterprises generally use accounting techniques of a
merchandising company.
c. The process of measuring net income is conceptually different.
d. There are just as many steps as in the accounting cycle for a merchandising
company.

____59. With regard to the accounts used to record freight costs,

a. Freight-out is added to Cost of Goods Sold.
b. Freight-out's normal balance is a debit.
c. Freight-out is recorded when freight terms are FOB shipping point.
d. Freight-out is a contra account to Sales.

____60. The Sales Returns and Allowances account

a. normally has a credit balance.
b. should not be closed at the end of the period.
c. is a contra account to Accounts Receivable.
d. is used by a merchandising company, but not a service enterprise.

____61. A debit to Sales Returns and Allowances is evidence of a

 a. sale on account.
b. return of goods originally purchased on account.
c. return of goods originally sold on account.
d. purchase of goods on account.

____62. Which of the following accounts is not included in the computation of net sales?
a. Sales Discounts
b. Sales
c. Sales Returns and Allowances
d. Freight Out
.
____63. Goods in transit should be included in the inventory of the
a. buyer when the terms are FOB destination.
b. buyer when the terms are FOB shipping point.
c. transportation company when the terms are FOB destination.
d. seller when the terms are FOB shipping point.

64 . A credit memorandum is prepared when

a. an employee does a good job.
b. goods are sold on credit.
c. goods that were sold on credit are returned.
d. customers refuse to pay their accounts.

65. The Sales Returns and Allowances account is classified as a(n)

a. asset account.
b. contra asset account.
c. expense account.
d. contra revenue account.
66. If a customer agrees to retain merchandise that is defective because the seller is willing to
reduce the selling price, this transaction is known as a sales
a. discount.
b. return.
c. contra asset.
d. allowance.

67. When goods are returned that relate to a prior cash sale,
a. the Sales Returns and Allowances account should not be used.
b. the cash account will be` credited.
c. Sales Returns and Allowances will be credited.
d. Accounts Receivable will be credited.

68. As an incentive for customers to pay their accounts promptly, a business may offer its
customers
a. a sales discount.
b. free delivery.
c. a sales allowance.
d. a sales return.

69. A sales discount does not

a. provide the purchaser with a cash saving.
b. reduce the amount of cash received from a credit sale.
c. increase a contra-revenue account.
d. increase an operating expense account.

70. Which of the following would not be classified as a contra account?

a. Sales
b. Sales Returns and Allowances
c. Accumulated Depreciation
d. Sales Discounts

71. In preparing closing entries for a merchandiser, the Income Summary account will be
credited for the balance of
a. sales.
 b. merchandise inventory.
c. sales discounts.
d. freight-out.

72. The operating expense section of an income statement for a wholesaler would not include
a. freight-out.
b. utilities expense.
c. cost of goods sold.
d. insurance expense.

73. Income from operations is gross profit less

A. administrative expenses.
b. operating expenses.
c. other expenses and losses.
d. selling expenses.

74. An enterprise which sells goods to customers is known as a

a. proprietorship.
b. corporation.
c. retailer.
d. service firm.
75. Which of the following expressions is incorrect?
a. Gross profit – operating expenses = net income
b. Sales – cost of goods sold – operating expenses = net income
c. Net income + operating expenses = gross profit
d. Operating expenses – cost of goods sold = gross profit

76. Detailed records of goods held for resale are not maintained under a
a. perpetual inventory system.
b. periodic inventory system.
c. double entry accounting system.
d. single entry accounting system.

77. A perpetual inventory system would likely be used by a(n)

a. automobile dealership.
b. hardware store.
c. drugstore.
d. convenience store.

78. Freight costs paid by a seller on merchandise sold to customers will cause an increase
a. in the selling expense of the buyer.
b. in operating expenses for the seller.
c. to the cost of goods sold of the seller.
d. to a contra-revenue account of the seller.

79. Bryan Company purchased merchandise from Cates Company with freight terms of FOB
shipping point. The freight costs will be paid by the
a. seller.
b. buyer.
c. transportation company.
d. buyer and the seller.

80. Sales revenues are usually considered earned when

a. cash is received from credit sales.
b. an order is received.
c. goods have been transferred from the seller to the buyer.
d. adjusting entries are made.

81. A sales invoice is a source document that

a. provides support for goods purchased for resale.
b. provides evidence of incurred operating expenses.
c. provides evidence of credit sales.
 d. serves only as a customer receipt.

81. On a classified balance sheet, merchandise inventory is classified as

a. an intangible asset.
b. property, plant, and equipment.
c. a current asset.
d. a long-term investment.

82. Gross profit for a merchandiser is net sales minus

a. operating expenses.
b. cost of goods sold.
c. sales discounts.
d. cost of goods available for sale.

83. All of the following items would be reported as other expenses and losses except
a. freight-out.
b. casualty losses.
c. interest expense.
d. loss from employees' strikes.

84. Cost of goods available for sale is computed by adding

a. beginning inventory to net purchases.
b. beginning inventory to the cost of goods purchased.
c. net purchases and freight-in.
d. purchases to beginning inventory.

85. Net purchases plus freight-in determines

a. cost of goods sold.
b. cost of goods available for sale.
c. cost of goods purchased.
d. total goods available for sale.

86. In a periodic inventory system, a return of defective merchandise by a customer is

recorded by crediting
a. Accounts Payable.
b. Merchandise Inventory.
c. Purchases.
d. Purchase Returns and Allowances.

87. Which one of the following transactions is recorded with the same entry in a perpetual and
a periodic inventory system?
a. Cash received on account with a discount
b. Payment of freight costs on a purchase
c. Return of merchandise sold
d. Sale of merchandise on credit

88. The journal entry to record a return of merchandise purchased on account under a
periodic inventory system would be
a. Accounts Payable
Purchase Returns and Allowances
b. Purchase Returns and Allowances
Accounts Payable
c. Accounts Payable
Inventory
d. Inventory
Accounts Payable

89. Under a periodic inventory system, acquisition of merchandise is debited to the

a. Merchandise Inventory account.
 b. Cost of Goods Sold account.
c. Purchases account.
d. Accounts Payable account.

90. Which of the following accounts has a normal credit balance?

a. Purchases
b. Sales Returns and Allowances
c. Freight-in
d. Purchase Discounts

91. The respective normal account balances of Purchases, Purchase Discounts, and Freight-
in are
a. credit, credit, debit
b. debit, credit, credit
c. debit, credit, debit
d. debit, debit, debit

92. In a work sheet for a merchandiser, Merchandise Inventory would appear in the
a. trial balance and adjusted trial balance columns only.
b. trial balance and balance sheet columns only.
c. trial balance, adjusted trial balance, and balance sheet columns.
d. trial balance, adjusted trial balance, and income statement columns.

93. The Merchandise Inventory account balance appearing in a work sheet represents the
a. ending inventory.
b. beginning inventory.
c. cost of merchandise purchased.
d. cost of merchandise sold.

94. Which of the following accounts is not closed to Income Summary?

a. Cost of Goods Sold
b. Merchandise Inventory
c. Sales
d. Sales Discounts

95. Net sales is sales less

a. sales discounts.
b. sales returns.
c. sales returns and allowances.
d. sales discounts and sales returns and allowances.

96. In the balance sheet, ending merchandise inventory is reported

a. in current assets immediately following accounts receivable.
b. in current assets immediately following prepaid expenses.
c. in current assets immediately following cash.
d. under property, plant, and equipment.

97. Cost of goods available for sale is computed by adding

a. freight-in to net purchases.
b. beginning inventory to net purchases.
c. beginning inventory to purchases and freight-in.
d. beginning inventory to cost of goods purchased.

____ 98. Credit sales would normally be recorded in the

a. voucher register.
b. sales journal.
c. general journal.
d. cash receipts journal.

____ 99. A check register may be used in lieu of a

a. cash disbursements journal.
b. purchases journal.
c. cash receipts journal.
d. sales journal.
____ 100. If a company uses a subsidiary ledger for accounts receivable, a credit sale must be recorded in the
subsidiary ledger and in the
a. general ledger.
b. sales journal.
c. cash receipts journal.
d. check register.