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True/False Quiz
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1
A wholesaler is a middleman that buys products and sells them to consumers.
A)True
B)False
2
A manufacturer earns net income by buying and selling merchandise.
A)True
B)False
3
Net sales revenue less cost of goods sold is called gross profit
A)True
B)False
4
A method of accounting that maintains continuous records of the cost of inventory on hand and the cost of goods sold is called a periodic inventory system.
A)True
B)False
5
Another term for gross margin is gross income.
A)True
B)False
6
Merchandise inventory is a product or products that a company owns and intends to sell to customers.
A)True
B)False
7
If the net sales for the business total $300,000, gross profit is $130,000, and net income is $80,000, the cost of goods sold must be $170,000.
A)True
B)False
8
The cost of goods sold is calculated by adding the cost of purchases to the beginning merchandise inventory and adding the ending merchandise inventory.
A)True
B)False
9
Another term for the cost of goods sold is the cost of merchandise available for sale.
A)True
B)False
10
An inventory system that provides a business with up-to-date data as to the quantity of goods on hand is called a perpetual inventory system.
A)True
B)False
11
In a perpetual inventory system, Cost of Goods Sold is determined every time a sale is occurs.
A)True
B)False
12
A trade discount is a discount available only to those who desire to barter with goods rather than dealing with money.
A)True
B)False
13
The Income Statement of a retailer (or merchandiser) uses exactly the same expense categories as a service business.
A)True
B)False
14
A deduction allowed from the invoice price of goods if payment is made within a specified period of time is called a trade discount.
A)True
B)False
15
When merchandise inventory is purchased with credit terms of 2/10, n/60, the discount period is 60 days from date of the invoice.
A)True
B)False
16
Merchandise purchased on June 14 with credit terms of 2/10, n/30, must be paid sooner than with credit terms of n/10 EOM.
A)True
B)False
17
When merchandise inventory is sold on account and a perpetual inventory system is used, two journal entries are required to record the sale.
A)True
B)False
18
In a perpetual inventory system, transportation charges are recorded by a debit to the Merchandise Inventory account.
A)True
B)False
19
When a return of merchandise requires the buyer to notify the seller of the reduction in the invoice due to the return, the memorandum sent by the buyer is called a credit memorandum.
A)True
B)False
20
When merchandise is purchased under transportation terms of FOB shipping point, the seller has agreed to pay the freight charges.
A)True
B)False
21
Transportation-In and Freight In are interchangeable terms but Delivery Expense refers to a different type of expense.
A)True
B)False
22
A multiple step income statement distinguishes between operating and non-operating activities.
A)True
B)False
23
A register of information outside the usual accounting records and accounts is called a substitute record.
A)True
B)False
24
The documentation for supporting a sales return and allowance authorized by the seller is a credit memo.
A)True
B)False
25
Pilferage is the term used for inventory losses that occur as a result of shoplifting or deterioration.
A)True
B)False
26
When closing entries are prepared, net income will be closed into the Capital account of the single-proprietorship business through a debit to the Income Summary account and a credit to the Capital account.
A)True
B)False
27
Operating expenses include general expenses, administrative expenses, and selling expenses.
A)True
B)False
28
An income statement in which the details of the cost of goods sold are not shown is called a single-step income statement.
A)True
B)False
29
An income statement format that shows intermediate totals between sales and net income and detailed computations of net sales and costs of goods sold is called a classified, multiple-step income statement.
A)True
B)False
30
If a company uses the perpetual inventory system, when a sale of merchandise is made for cash, the Cost of Goods Sold will not be affected by any journal entry.
A)True
B)False
31
The account Sales Discounts has a normal debit balance.
A)True
B)False
32
The acid-test ratio is sometimes called the quick ratio.
A)True
B)False
33
The acid-test ratio gives investors and other interested parties a better idea than the current ratio of the how well the company can pay off its obligations that are due in the very near future.
A)True
B)False
34
Merchandise inventory is included in both the acid-test ratio and the current ratio calculation.
A)True
B)False
35
If net sales for the business total $600,000, gross profit $240,000, and net income is $110,000, the gross margin ratio is 50%.
A)True
B)False
36
A company's a gross margin ratio has decreased over the last three years. Management should be pleased that profitability is improving.
A)True
B)False
37
When using a periodic inventory system, the accounts 'Purchases,' 'Purchase Returns' and 'Purchase Discounts' are used.
A)True
B)False
38
When using a periodic inventory system, management can go to the accounting records at any time to determine the amount of inventory on hand.
A)True
B)False
39
Under the periodic inventory system, there will be more accounts to close than when using a perpetual inventory system.
A)True
B)False
40
The steps in the accounting cycle are the same for a merchandising business and a service business.
A)True
B)False





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