Question :
Essay Questions
106. Accounting terminology Listed below nine technical accounting terms introduced : 1229733
Essay Questions
106. Accounting terminology Listed below are nine technical accounting terms introduced in this chapter:
Gross profit
Gross profit rate
General ledger
Cost of goods sold
Physical inventory
Subsidiary ledger
Perpetual inventory system
Periodic inventory system Inventory shrinkage
Each of the following statements may (or may not) describe one of these technical terms. In the space provided below each statement, indicate the accounting term described, or answer “None” if the statement does not correctly describe any of the terms.
____ a. An approach to accounting for inventories and the cost of goods sold used primarily in small businesses with manual accounting systems.
____ b. A reason why perpetual inventory records may not be entirely accurate.
____ c. The difference between the revenue earned by selling merchandise and the cost of goods sold.
____ d. Gross profit divided by average total stockholders’ equity.
____ e. An accounting procedure used in both perpetual and periodic inventory systems. In a perpetual system, this procedure brings to light the amount of inventory shrinkage. In a periodic system, it is the basis for computing the cost of goods sold.
____ f. An accounting record showing the individual items comprising the balance of a general ledger account.
____ g. The accounting record in which transactions initially are recorded.
107. Effects of transactions upon the accounting equation Listed below are selected transactions of Simon’s, a retail store which uses a perpetual inventory system:
(a) Purchased merchandise on account.
(b) Made an entry to recognize the revenue from a sale of merchandise on account. (Ignore the cost of goods sold.)
(c) Recognized the cost of goods sold relating to the sale in Transaction b.
(d) Collected in cash the account receivable from the customer in Transaction b.
(e) Following the taking of a physical inventory at year-end, made an adjusting entry to record a normal amount of inventory shrinkage.
Indicate the effects of each of these transactions upon the elements of the company’s financial statements. Organize your answer in tabular form, using the column headings shown below. (Notice that the cost of goods sold is shown separately from all other expenses.) Use the code letters I for increase, D for decrease, and NE for no effect. The answer for Transaction a is provided as an example.
108. Subsidiary ledgers Listed below are several merchandising transactions of Siegel’s Garden Center, a garden supply store.
(a) Purchased merchandise from Bayview Wholesale on account.
(b) Sold merchandise for cash.
(c) Sold merchandise on account to Dom’s Landscaping Co.
(d) Paid the account payable to Bayview Wholesale.
(e) Collected the account receivable from Dom’s Landscaping Co.
Among the accounting records maintained by Siegel’s are subsidiary ledgers for inventory, accounts receivable, and accounts payable.
For each of the five transactions, you are to indicate any subsidiary ledger (or ledgers) to which the transaction would be posted. Use the code:
Inv = Inventory subsidiary ledger
AR = Accounts receivable subsidiary ledger
AP = Accounts payable subsidiary ledger
Also indicate whether each posting causes the balance in the subsidiary ledger account to increase or decrease. Organize your answer in tabular form as illustrated below. The answer for transaction a is provided as an example.
