Question 1

With regards to the income statement for a retailer, which of the following statements is correct?

Accepted Answer

A)   The cost of sales section is the same no matter whether the periodic or perpetual inventory system is used.
B)   Under the periodic system freight inwards is added to the cost of purchases.
C)   Interest revenue is added to sales revenue to calculate gross profit.
D)   Expenses are classified into the groupings selling expenses, distribution expenses, and administrative and finance expenses.E) None of the above
F) A) and D)

Question 2

Under the periodic inventory system a/an ___________ is required before the cost of sales can be estimated.

Accepted Answer

A)   error check
B)   stocktake
C)   virus scan
D)   auditE) C) and D)
F) A) and B)

Question 3

GST collected on sales is accumulated in a liability account called GST payables and GST paid on purchases is accumulated in an account with a debit balance called GST receivables. What type of account is GST receivables?

Accepted Answer

A)   Asset
B)   Expense
C)   Contra expense
D)   Contra liabilityE) C) and D)
F) A) and B)

Question 4

Inventory is reported on the balance sheet as:

Accepted Answer

A)   property, plant and equipment.
B)   a non-current asset.
C)   a current asset.
D)   a liability.E) A) and D)
F) None of the above

Question 5

The process of counting and pricing the entire inventory on hand on a particular date is known as:

Accepted Answer

A)   the periodic inventory system.
B)   merchandise pricing.
C)   a stocktake.
D)   invoicing.E) B) and D)
F) C) and D)

Question 6

Under the perpetual inventory system inventory purchased is debited to which account?

Accepted Answer

A)   Cost of sales
B)   Purchases
C)   Inventory
D)   Selling expensesE) None of the above
F) A) and C)

Question 7

The formula, gross profit divided by sales, will calculate the:

Accepted Answer

A)   sales ratio
B)   gross profit ratio
C)   inventory ratio
D)   cost of sales ratioE) A) and D)
F) A) and C)

Question 8

Which of the following is not required to appear on a tax invoice?

Accepted Answer

A)   The words 'tax invoice'
B)   The GST amount payable
C)   The ABN of the issuing entity
D)   The signature of the person authorising the invoiceE) A) and C)
F) B) and C)

Question 9

Brian sold goods to Mike on credit for $1100 including GST. The correct accounting entry to record this transaction in Brian's books is:

Accepted Answer

A)   DR Accounts receivable $1100, CR Sales $1100
B)   DR Accounts receivable $1000, CR Sales $1000
C)   DR Accounts receivable $1100; CR Sales $1000, CR GST payable $100
D)   DR Accounts receivable $1000, DR GST payable $100; CR Sales $1100E) B) and D)
F) C) and D)

Question 10

GST is credited to the GST payable account when a sale occurs. If goods are returned or a discount allowed the _______________ account must be debited with an adjustment for GST.

Accepted Answer

A)   GST receivable
B)   GST payable
C)   Purchases
D)   Discount allowedE) A) and B)
F) C) and D)

Question 11

The use of computers has been a breakthrough for the perpetual inventory system. Many retail businesses use optical-scan cash registers to read barcodes. The scanners record the sale and, at the same time, update the inventory records with the of the sale.

Accepted Answer

A)   fair value
B)   cost
C)   discount
D)   dateE) B) and C)
F) A) and D)

Question 12

When preparing an income statement for a retailer how will each of the following items be classified?
I. Discount allowed; and
II. Depreciation of sales-person's motor vehicles

Accepted Answer

A)   Finance expenses; selling and distribution expenses
B)   Administrative expenses; selling and distribution expenses
C)   Finance expenses; administrative expenses
D)   Selling and distribution expenses; selling and distribution expenseE) B) and C)
F) A) and C)

Question 13

To obtain the maximum possible benefit from a cash discount of 2/10, n/30, the buyer should pay the invoice:

Accepted Answer

A)   immediately.
B)   when the seller threatens legal action.
C)   at the end of the month to receive a 7% discount.
D)   on the last day of the discount period, i.e. in 10 days, to receive a 2% discount.E) B) and C)
F) A) and D)

Question 14

Under the perpetual inventory method, which of the following entries would be a closing entry at the end of the accounting period?

Accepted Answer

A)   DR Inventory; CR Profit or loss summary
B)   DR Profit or loss summary; CR Inventory
C)   DR Profit or loss summary; CR Cost of sales
D)   DR Profit or loss summary; CR PurchasesE) A) and B)
F) A) and C)

Question 15

Assuming that the net price method of recording purchases is used and that the business uses the perpetual method of inventory recording, the correct entry to record the purchase of goods for $5000 on credit, with terms of 2/10, n/30 is: (ignore GST) .

Accepted Answer

A)   DR Inventory $5000; CR Accounts payable $5000
B)   DR Inventory $4900; CR Accounts payable $4900
C)   DR Inventory $4900; DR Discount allowed $100: CR Accounts payable $5000
D)   DR Purchases $5000; CR Accounts payable $4900; CR Discount allowed $100E) C) and D)
F) A) and C)

Question 16

Under the perpetual inventory system, three office desks were originally purchased on CR at $300 each plus 10% GST. If all three desks were sold to a customer at $550 each (including GST)  what is the correct entry to record the cost of the sale?

Accepted Answer

A)   DR Cost of sales $1650; CR Sales $1650
B)   DR Cost of sales $900; CR Sales $900
C)   DR Cost of sales $900; CR Inventory $900
D)   DR Cost of sales $900; DR GST receivable $90; CR Inventory $990E) All of the above
F) A) and B)

Question 17

Cost of goods available for sale is equal to:

Accepted Answer

A)   Beginning inventory + net purchases
B)   Beginning inventory + net purchases - ending inventory
C)   Beginning inventory - ending inventory
D)   Net purchases - ending inventoryE) None of the above
F) A) and B)

Question 18

Which of the following statements is not true?

Accepted Answer

A)   A decline in the gross profit ratio can be caused by decreases in the cost of sales.
B)   A decline in the gross profit ratio represents an unfavourable trend.
C)   The gross profit ratio can be compared with ratios for similar businesses.
D)   The gross profit ratio is calculated as gross profit divided by net sales.E) All of the above
F) B) and C)

Question 19

Under the perpetual inventory system, the number of accounting entries required to record a credit sale is:

Accepted Answer

A)   1.
B)   2.
C)   3.
D)   4.E) B) and C)
F) A) and B)

Question 20

When interim accounting reports are prepared on a worksheet and the periodic method of accounting for inventory is used, closing inventory is:

Accepted Answer

A)   not recorded.
B)   recorded in the income statement debit column as a deduction from cost of sales and in the balance sheet debit column as a current asset.
C)   recorded in the income statement credit column as a deduction from cost of sales and in the balance sheet debit column as a current asset.
D)   is recorded as a debit to the inventory asset account and as CR to the gross profit account.E) B) and D)
F) A) and D)

Exam 6: Accounting for Retailing

With regards to the income statement for a retailer, which of the following statements is correct?

Correct AnswerverifiedShow Answer

The process of counting and pricing the entire inventory on hand on a particular date is known as:

Correct AnswerverifiedShow Answer

GST collected on sales is accumulated in a liability account called GST payables and GST paid on purchases is accumulated in an account with a debit balance called GST receivables. What type of account is GST receivables?

Correct AnswerverifiedShow Answer

Under the perpetual inventory method, which of the following entries would be a closing entry at the end of the accounting period?

Correct AnswerverifiedShow Answer

To obtain the maximum possible benefit from a cash discount of 2/10, n/30, the buyer should pay the invoice:

Correct AnswerverifiedShow Answer

When interim accounting reports are prepared on a worksheet and the periodic method of accounting for inventory is used, closing inventory is:

Correct AnswerverifiedShow Answer

Cost of goods available for sale is equal to:

Correct AnswerverifiedShow Answer

Brian sold goods to Mike on credit for $1100 including GST. The correct accounting entry to record this transaction in Brian's books is:

Correct AnswerverifiedShow Answer

The use of computers has been a breakthrough for the perpetual inventory system. Many retail businesses use optical-scan cash registers to read barcodes. The scanners record the sale and, at the same time, update the inventory records with the of the sale.

Correct AnswerverifiedShow Answer

Inventory is reported on the balance sheet as:

Correct AnswerverifiedShow Answer

The formula, gross profit divided by sales, will calculate the:

Correct AnswerverifiedShow Answer

Which of the following statements is not true?

Correct AnswerverifiedShow Answer

Assuming that the net price method of recording purchases is used and that the business uses the perpetual method of inventory recording, the correct entry to record the purchase of goods for $5000 on credit, with terms of 2/10, n/30 is: (ignore GST) .

Correct AnswerverifiedShow Answer

Under the perpetual inventory system, the number of accounting entries required to record a credit sale is:

Correct AnswerverifiedShow Answer

When preparing an income statement for a retailer how will each of the following items be classified? I. Discount allowed; and II. Depreciation of sales-person's motor vehicles

Correct AnswerverifiedShow Answer

Under the perpetual inventory system inventory purchased is debited to which account?

Correct AnswerverifiedShow Answer

Which of the following is not required to appear on a tax invoice?

Correct AnswerverifiedShow Answer

Under the periodic inventory system a/an ___________ is required before the cost of sales can be estimated.

Correct AnswerverifiedShow Answer

GST is credited to the GST payable account when a sale occurs. If goods are returned or a discount allowed the _______________ account must be debited with an adjustment for GST.

Correct AnswerverifiedShow Answer

Under the perpetual inventory system, three office desks were originally purchased on CR at $300 each plus 10% GST. If all three desks were sold to a customer at $550 each (including GST) what is the correct entry to record the cost of the sale?

Correct AnswerverifiedShow Answer

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