3) A journal entry that has more than one debit or more than one credit is known as a complex
journal entry.
4) The account Sales Returns and Allowances is debited when items are returned from a
customer.
5) Cost of Goods Sold is the account that is matched with the Sales account to record the
company’s cost of the inventory that was sold under a perpetual inventory system.
6) When a customer returns goods, the journal entry for a merchandiser using the perpetual
inventory system will include a debit to Sales Returns and Allowances and a debit to Inventory.
7) A customer purchased items on account from Santorini, Inc. After a few days, the customer
returned the goods. Santorini, Inc. will issue a:
A) debit memorandum.
B) return receipt.
C) credit memorandum.
D) refund check.
8) A list of credit customers is called a(n):
A) Accounts Payable subsidiary ledger.
B) general ledger.
C) Accounts Receivable subsidiary ledger.
D) general journal.
9) Under the perpetual inventory system, Sales Returns cause:
A) an increase in Cost of Goods Sold.
B) an increase in Revenue.
C) a decrease in Cost of Goods Sold.
D) no effect on cost of goods sold.
10) The account in which the revenue earned from the sale of merchandise is entered is:
A) Retained Earnings.
B) Sales.
C) Cash.
D) Inventory.
11) Which of the following accounts is NOT used to account for merchandise sales transactions?
A) Accounts Payable
B) Accounts Receivable
C) Sales Discounts
D) Sales Returns and Allowances
12) James, a customer, purchased $500 of merchandise from Haskins, Inc. Under the perpetual
inventory system, Haskins, Inc. will record a:
A) debit to Accounts Receivable or to Cash for $500.
B) credit to Accounts Receivable or to Cash for $500.
C) credit to Cost of Goods Sold for $500.
D) debit to Sales for $500.
13) Merchandise returned by the customer for a cash refund is called a:
A) sales return.
B) sales allowance.
C) debit memorandum.
D) credit memorandum.
14) An entry that has more than one debit and/or credit is called a:
A) double entry.
B) compound entry.
C) multiple-step entry.
D) special entry.
15) Under a perpetual inventory system, when goods are returned to the retailer from a customer:
A) Cost of Goods Sold is debited; Sales Returns and Allowances is credited.
B) Sales Returns and Allowances is debited; Cost of Goods Sold is credited.
C) Sales is debited; Cost Goods Sold is credited.
D) Inventory is debited; Sales is credited.
16) The General Store has cash sales for the week of $5,000 and credit sales of $3,500. The
account(s) to be debited for these transactions is/are:
A) MasterCard sales; Visa sales; and cash.
B) Cash; Accounts Receivable.
C) Cash only.
D) MasterCard sales; Visa sales.
17) Sales is a(n) ________ account.
A) asset
B) liability
C) revenue
D) contra-
18) Sales Returns and Allowances appear on the:
A) Balance Sheet.
B) Statement of Retained Earnings.
C) Income Statement.
D) Income Statement and Balance Sheet.
19) Costs of Goods Sold includes which of the following?
A) The actual cost of the item
B) Administrative fees
C) Management salaries
D) Depreciation Expense
20) When a retailer sells merchandise on account, the general entry for the sale’s price would be:
A) debiting Accounts Receivable and crediting Sales.
B) debiting Accounts Receivable and crediting Inventory.
C) debiting Accounts Receivable and crediting Cost of Goods Sold.
D) debiting Cost of Goods Sold and crediting Sales.
21) The entry to record the company’s cost of selling merchandise under a perpetual inventory
system would be a:
A) debit to Accounts Receivable and a credit to Sales.
B) debit to Inventory and a credit to Cost of Goods Sold.
C) debit to Cost of Goods Sold and a credit to Inventory.
D) debit to Cost of Goods Sold and a credit to Sales.
22) Randy, a customer of Classics Company, returned $45 of goods that were purchased on
account. Under the perpetual inventory system, Classics will record a:
A) debit to Sales Returns and Allowances and a credit to Accounts Receivable-Randy for $45.
B) debit to Sales and a credit to Accounts Receivable-Randy for $45.
C) debit to Cost of Goods Sold and a credit to Inventory for $45.
D) debit to Sales and a credit to Cost of Goods Sold for $45.
23) Archer Manufacturing had sales for the week of $3,569, of which $2,900 was on credit and
$659 in cash sales. The cost of the merchandise sold was $1,888. The journal entries would
include a:
A) debit to Cost of Goods Sold for $1,888; credit to Inventory for $1,888.
B) debit to Cash for $3569, credit to Sales for $3,569.
C) debit to Cash for $3,569 and a credit to Cost of Goods Sold for $3,569.
D) debit to Cost of Goods Sold for $1,888; credit to Sales of $1,888.
24) When a merchandiser sells on account, which of the following accounts is NOT needed to
record the transaction?
A) Cost of Goods Sold
B) Accounts Receivable
C) Inventory
D) Cash
25) Net sales is computed by taking:
A) Gross Sales – Sales Returns and Allowances + Sales Discounts.
B) Gross Sales – Sales Returns and Allowances – Sales Discounts.
C) Gross Sales + Sales Returns and Allowances + Sales Discounts.
D) Gross Sales – Cash received for sales.
26) When a customer returns goods, the merchandiser will NOT:
A) Decrease net sales revenue
B) Decrease Cost of Goods Sold
C) Increase Accounts Receivable
D) Increase Inventory
4.5 Questions
1) FOB destination means that title passes at the time of shipment of the product to the buyer
from the seller.
2) FOB shipping point means that title passes at the time the product is shipped from the seller.
3) A buyer debits the shipping charges that they pay for merchandise purchased to inventory.
4) When a company sells goods to customers FOB destination, the company’s delivery expense
account is credited for the cost of shipment.
5) Advertising and promotion are examples of selling expenses.
6) FOB means:
A) first on board.
B) from our buyer.
C) fee on board.
D) free on board.
7) Transferring title refers to a:
A) change of ownership.
B) change of buyer.
C) change of seller.
D) legal document.
8) Depreciation on the company warehouse is an example of a(n):
A) inventory expense.
B) asset expense.
C) selling expense.
D) delivery expense.
9) Which of the following indicates that the shipment is free on board and the buyer pays all of
the shipping and freight costs?
A) Cash on delivery
B) FOB shipping point
C) FOB destination
D) 2/10, n/30
10) Which of the following indicates that the shipment is free on board and the seller pays all of
the shipping and freight costs?
A) Cash on delivery
B) FOB shipping
C) FOB destination
D) 2/10, n/30
11) Under a perpetual inventory system, the account to which transportation charges on
incoming merchandise is generally entered is:
A) Inventory.
B) FOB shipping.
C) FOB destination.
D) Delivery Expense.
12) When a company repays the seller for shipping costs on an FOB shipping point transaction,
which of the following is TRUE?
A) A purchase discount can still be taken net of the prepaid shipping charges.
B) A purchase discount can still be taken on the gross amount of the invoice.
C) A purchase discount cannot be taken when shipping charges are prepaid.
D) The shipping costs do not affect the invoice value.
13) Merchandise is sold FOB shipping point. If the seller prepays the delivery costs and adds
them to the customer’s invoice, the entry the seller must prepare, will:
A) debit Cash and credit Inventory.
B) debit Inventory and credit Cash.
C) debit Delivery Expense and credit Cash.
D) debit Accounts Receivable and credit Cash.
14) Greene Company purchases $5,000 inventory with shipping terms, FOB Columbus. Greene
is based in Dayton and the supplier is based in Columbus. The shipping costs are $460. What is
the cost of Greene’s inventory?
A) $5,000
B) $5,460
C) Either $5,000 or $5,460 is an acceptable amount to assign to inventory cost under GAAP.
D) There is not enough information to calculate inventory cost.
15) Which of the following is NOT a selling expense?
A) Advertising
B) Salary of salesperson
C) Utility bill
D) Commissions
16) The accounting principle that relates to the expensing of freight charges is:
A) the cost principle.
B) the reliability principle.
C) the matching principle.
D) none of the above.
4.6 Questions
1) Most merchandising businesses prepare a single-step Income Statement.
2) Cost of Goods Sold is part of general and administrative expenses.
3) Net Sales minus Cost of Goods Sold equals Gross Profit.