Q: Which formula correctly calculates Net Sales Revenue?

$$\text{Net Sales Revenue} = \text{Sales Revenue} - (\text{Sales Returns and Allowances} + \text{Sales Discounts})$$

Question 1

Which of the following best describes the primary difference between a service company and a merchandising company as shown on their income statements?

Accepted Answer

A merchandising company reports net sales revenue and cost of goods sold, while a service company does not.

Question 2

A company purchases $10,000 of inventory on account with terms 2/10, n/30. If the company pays within the discount period, what is the amount paid?

Accepted Answer

$9,800

Question 3

Which journal entry correctly records the purchase of inventory for cash?

Accepted Answer

Debit Merchandise Inventory, Credit Cash

Question 4

A company sells inventory costing $$700 for 1$$,000 cash. Which of the following entries is required?

Accepted Answer

Debit Cash $$1,000; Credit Sales Revenue 1$$,000; Debit Cost of Goods Sold $$700; Credit Merchandise Inventory 700$$

Question 5

If a company uses the perpetual inventory system, which account is debited when inventory is purchased on account?

Accepted Answer

Merchandise Inventory

Question 6

A company returns $2,000 of inventory to a supplier. Which is the correct journal entry under the perpetual system?

Accepted Answer

Debit Accounts Payable $$2,000; Credit Merchandise Inventory 2$$,000

Question 7

Which formula correctly calculates Net Sales Revenue?

Accepted Answer

$$	ext{Net Sales Revenue} = 	ext{Sales Revenue} - (	ext{Sales Returns and Allowances} + 	ext{Sales Discounts})$$

Question 8

A company pays $60 cash for freight-in on inventory purchased. Which account is debited under the perpetual inventory system?

Accepted Answer

Merchandise Inventory

Question 9

Under FOB shipping point, who pays the freight charges and when does ownership transfer?

Accepted Answer

Buyer pays; ownership transfers when goods leave the seller

Question 10

A company’s beginning inventory is $$10,000, purchases are 50$$,000, ending inventory is $8,000. What is the cost of goods sold?

Accepted Answer

$$\10$$,000 + \$$50,000 - \8$$,000 = \$$52,000$$

Question 11

Which of the following is NOT included in the calculation of net cost of inventory purchased under the periodic system?

Accepted Answer

Sales Discounts

Question 12

A company grants a $100 sales allowance to a customer for damaged goods. What is the correct journal entry?

Accepted Answer

Debit Sales Returns and Allowances $$100; Credit Accounts Receivable 100$$

Question 13

Which of the following best describes inventory shrinkage?

Accepted Answer

The difference between the physical count of inventory and the amount recorded in the books

Question 14

Which closing entry is correct for closing the Sales Revenue account at year-end?

Accepted Answer

Debit Sales Revenue; Credit Income Summary

Question 15

A merchandising company’s balance sheet includes which of the following as a current asset that a service company does NOT have?

Accepted Answer

Merchandise Inventory

Question 16

If a company sells goods on account for $5,000 with terms 2/10, n/30, and the customer pays within the discount period, what is the amount of cash received?

Accepted Answer

$4,900

Question 17

Which of the following is the correct formula for Gross Profit?

Accepted Answer

$$	ext{Gross Profit} = 	ext{Net Sales Revenue} - 	ext{Cost of Goods Sold}$$

Question 18

A company using the periodic inventory system records a purchase of inventory on account. Which account is debited?

Accepted Answer

Purchases

Question 19

Which of the following is true regarding the multi-step income statement for a merchandising company?

Accepted Answer

It separates operating expenses into selling and administrative expenses.

Merchandising Operations and Inventory in Financial Accounting

Study Guide - Practice Questions

Study Guide - Flashcards