A company buys and sells merchandise rather than

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1. A   _________________   company   buys   and   sells   merchandise   rather   than performing services as their primary source of revenue. 2. Cost of goods sold is deducted from net sales revenue for the period in order to arrive at ________________. 3. Inventory on hand can be obtained from detailed inventory records when a ________________ inventory system is maintained. 4. The acquisition of inventory is debited to the ____________ account when a perpetual inventory system is used. 5. The   freight   costs   incurred   by   a   seller   on   outgoing   merchandise   are   an ________________ to the seller. 6. When a customer returns undamaged merchandise previously purchased on credit,   the   entry   to   record   the   return   requires   a   debit   to   the ___________________ account and a credit to the ________________ account. 7. Every   credit   purchase   should   be   supported   by   _________________   that provides written evidence of the transaction. 8. Sales Returns and Allowances is ______________ account and normally has a _______________ balance. 9. Gross   profit   is   obtained   by   subtracting   ________________   from ________________. 10. A useful measure for evaluating operating expenses is the ratio of operating expenses to _____________. 4
Chapter 4 Questions Exercises Ex 1. Your friend owns a small business supplying restaurants with fresh organically grown produce.  She prepares her own financial statements and has asked you to review the Income Statement she prepared for the financial year ended 31 March 2010: Olivia’s Organic Produce Ltd Income Statement 31 March 2010 Revenues Sales $351,000 Less: Freight out $5,000 Discount allowed    5,650    10,650 Net Sales 340,350 Other revenues (net)         650 Total revenues 341,000 Expenses Cost of goods sold 235,000 Selling expenses 50,000 Administrative expenses 24,500 Financial expenses 500 Dividends     6,000 Total expenses 316,000 Profit    25,000 As an experienced accountant, you review the statement and determine the following facts: 1. Sales include $5,000 of deposits from customers for future sales orders. 2. Other revenues contain two items: interest expense $2,000 and interest revenue $2,650. 3. Selling   expenses   consist   of   sales   salaries   $38,000;   advertising   $5,000; depreciation   on   storage   equipment   $3,750;   and   sales   commissions   expense $3,250. 4. Administrative  expenses consist  of office  salaries  $9,500;  electricity  expense $4,000; rent expense $8,000; and insurance expense $3,500.  Insurance expense includes $600 of prepaid insurance.   5. Financial expenses consist of $500 bank charges. Required: 5
Chapter 4 Questions

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