Deck 8: Accounting for Purchases and Accounts Payable

Question 1

A purchase of merchandise for cash should be recorded in the purchases journal.

Answer 1

False

Question 2

Which of the following statements is correct?

A)The purchase requisition is the form sent to a supplier to order goods.
B)The credit terms, 2/10, n/30, allow the customer to take a 2 percent discount if payment is made within 10 days of the invoice, otherwise payment is due in full in 30 days.
C)To the customer, a supplier's invoice is a purchase order invoice.
D)The Purchases account is reported as an asset on the balance sheet.

Answer 2

B

Question 3

The Purchases account is:

A)a temporary account.
B)a liability account.
C)a permanent account.
D)a subsidiary account.

Answer 3

A

Question 4

The supplier's invoice is the source document for a purchase on credit transaction.

Question 5

The Purchases Returns and Allowances account has a normal debit balance.

Question 6

To show that the totals of the amount columns in the purchases journal were posted, the appropriate account numbers are written in parentheses below the totals.

Question 7

At the end of the accounting period the total of the accounts in the accounts payable subsidiary ledgers need not agree to the total in the firm's accounts payable ledger account.

Question 8

The use of a purchases journal strengthens the audit trail.

Question 9

The entry to record the return of merchandise purchased on credit includes a debit to Accounts Payable and a credit to Purchases Returns and Allowances.

Question 10

After a supplier of merchandise is selected, the purchasing department issues a form called:

A)a sale invoice.
B)a purchase requisition.
C)a purchase order.
D)a purchase invoice.

Question 11

The abbreviation P1 in the Posting Reference column of an account indicates that the data was posted from page 1 of the cash payments journal.

Question 12

If an amount recorded in the general journal requires two postings, a diagonal line is used to separate the two posting references in the posting reference column.

Question 13

When an accounts payable subsidiary ledger is used, the entry to Accounts Payable requires two posting references in the general journal.

Question 14

No amounts are posted from the purchases journal to the accounts payable subsidiary ledger during the month.

Question 15

Which of the following statements is not correct?

A)Cash purchases of merchandise are not recorded in the purchases journal.
B)The Purchases account has a normal debit balance.
C)The invoice date and credit terms must be carefully recorded in the purchases journal because they determine when payment is due.
D)A credit purchase of equipment for use in the business would be recorded in the purchases journal.

Question 16

Each individual entry in the purchases journal is posted to the general ledger at the end of each day.

Question 17

A firm's accounts payable ledger may include accounts for creditors who are not suppliers of merchandise.

Question 18

Freight charges on merchandise purchases should be debited to:

A)the Accounts Payable account.
B)the Purchases account.
C)the creditor's account in the subsidiary ledger.
D)the Freight In account.

Question 19

Freight In and Purchases Returns and Allowances are deducted from Purchases to determine the net delivered cost of purchases.

Question 20

The entry to record a purchase of merchandise on credit includes:

A)a debit to Purchases and a credit to Accounts Payable.
B)a debit to Purchases and a credit to Accounts Receivable.
C)a debit to Accounts Payable and a credit to Purchases.
D)a credit to Purchases and a credit to Accounts Payable.

Question 21

Purchases of supplies on credit that are to be used in the business are entered in:

A)the cash receipts journal.
B)the general journal.
C)the cash payments journal.
D)the purchases journal.

Question 22

The amount of the purchases for a period is presented in:

A)the cost of purchases statement.
B)the balance sheet.
C)the income statement.
D)the statement of owner's equity.

Question 23

When the sales department needs goods, it sends the purchasing department a form called:

A)a sales invoice.
B)a purchase requisition.
C)a purchase order.
D)a purchase invoice.

Question 24

To record a return of merchandise purchased on credit on the books of the buyer, the accountant would:

A)debit Purchases and credit Purchases Returns and Allowances.
B)debit Purchases Returns and Allowances and credit Accounts Receivable.
C)debit Purchases Returns and Allowances and credit Purchases.
D)debit Accounts Payable and credit Purchases Returns and Allowances.

Question 25

Which of the following statements is correct?

A)Freight In is subtracted from Purchases to arrive at delivered cost of purchases.
B)Freight charges that are listed on the invoice received from a supplier are not part of the total credit to Accounts Payable to record the credit purchase.
C)Another name that may be used for the Freight In account is "Transportation In."
D)The Freight In account is subtracted from Sales to get Net Sales.

Question 26

Postings to the accounts payable ledger should be made:

A)monthly.
B)at the end of the fiscal period.
C)weekly.
D)daily.

Question 27

Check marks next to the individual amounts in the purchases journal mean that the amounts:

A)have been posted to the accounts payable subsidiary ledger.
B)have been posted to the general ledger.
C)have been posted to the accounts receivable subsidiary ledger.
D)do not need to be posted to any account.

Question 28

In a firm that uses special journals, the purchase of merchandise for cash is recorded in the:

A)cash payments journal.
B)general journal.
C)cash receipts journal.
D)purchases journal.

Question 29

Purchases of merchandise on credit should be recorded in:

A)the sales journal.
B)the purchases journal.
C)the cash payments journal.
D)the general journal.

Question 30

The type of account and normal balance of Purchase Returns and Allowances is a(n):

A)contra revenue account, credit balance.
B)contra cost of goods sold account, credit balance.
C)expense account, credit balance.
D)asset account, debit balance.

Question 31

In a firm that uses special journals, the purchase of merchandise with terms of 2/10, n/30 is recorded in the:

A)purchases journal.
B)cash receipts journal.
C)cash payments journal.
D)general journal.

Question 32

The total of the balances in the individual creditor's accounts should agree with the balance of:

A)the Sales account in the general ledger.
B)the Accounts Receivable account in the general ledger.
C)the Purchases account in the general ledger.
D)the Accounts Payable account in the general ledger.

Question 33

Music, Inc. uses a periodic inventory system when recording its purchases and sales of inventory. If the business returns $1,000 of damaged goods to its supplier, select the correct entry to record the return:

A)

B)

C)

D)

Question 34

In a firm that uses special journals, the return of damaged merchandise to a supplier and receipt of a credit memorandum is recorded in the:

A)cash receipts journal.
B)purchases journal.
C)general journal.
D)cash payments journal.

Question 35

Nice Guys Apparel received a $200 credit memorandum as an allowance for goods that it returned to one of its suppliers. Identify the statement below that would be correct when posting the transaction.

A)A credit of $200 would be posted to the Purchases account in the general ledger.
B)A debit of $200 would be posted to the supplier's account in the accounts payable ledger.
C)A debit of $200 would be posted to the supplier's account in the accounts receivable ledger.
D)A credit of $200 would be posted to the Accounts Receivable account in the general ledger.

Question 36

Credit terms of 1/10, n/30 means that:

A)payment in full is due 10 days after date of the invoice.
B)a 1% discount may be taken for up to 30 days.
C)if the invoice is paid within 10 days of its date, a 1% discount may be taken; otherwise the total amount is due in 20 days.
D)if the invoice is paid within 10 days of its date, a 1% discount may be taken; otherwise the total amount is due in 30 days.

Question 37

In a firm that uses special journals, the receipt of a credit memorandum from a supplier for merchandise that was damaged but can be sold at a reduced price is recorded in the:

A)general journal.
B)cash receipts journal.
C)cash payments journal.
D)purchases journal.

Question 38

The source document for recording a purchase of merchandise on credit is:

A)the receiving report.
B)the purchase requisition.
C)the purchase order.
D)the purchase invoice.

Question 39

In a firm that uses special journals, the purchase of merchandise for $2,800, payable in 30 days, plus a freight charge of $140 is recorded in the:

A)cash receipts journal.
B)general journal.
C)purchases journal.
D)cash payments journal.

Question 40

A creditor's account in the accounts payable ledger has a $1,600 beginning balance. After a transaction for $700 is posted from the purchases journal, the balance of the creditor's account is:

A)$900 credit.
B)$2,300 debit.
C)$2,300 credit.
D)$900 debit.

Question 41

Best Value Furniture uses the periodic inventory system to account for its inventory. It purchased
$2,000 of goods from its supplier but later returned $400 of the goods due to damage. Best Value would record the return by:

A)debiting Accounts Payable, crediting Purchases Purchase Returns and Allowances
B)debiting Sales Returns and Allowances, crediting Accounts Receivable
C)debiting Purchases Returns and Allowances, crediting Accounts Payable
D)debiting Accounts Payable, crediting Purchases

Question 42

Tune Tones Instrument Tuning Company owes Mandy Lynn's Music Studio $5,280 as of November 1. During November Tune Tones purchased merchandise from Mandy Lynn totaling
$10,180 and made payments on account to Mandy Lynn in the amount of $6,300. The amount Tune Tones owes Mandy Lynn on November 30 is:

A)$10,180
B)$11,580
C)$9,160
D)$5,280

Question 43

If a perpetual inventory system is used instead of a periodic system, identify the accounts that the
Merchandise Inventory account replaces.

A)Purchases, Sales, Freight In
B)Purchases, Cost of Goods Sold
C)Purchases, Accounts Receivable, Freight In
D)Purchases, Purchase Returns and Allowances, Freight In

Question 44

Which of the following accounts has a normal debit balance?

A)Purchase Returns
B)Sales
C)Purchases
D)Accounts Payable

Question 45

Skiing International uses a perpetual inventory system when recording its purchases and sales of inventory. If the business purchases $8,000 of goods on account, select the correct entry to record the purchase:

A)

B)

C)

D)

Question 46

If a company uses a perpetual inventory system when recording its purchases and sales of inventory, the entry to record the freight charges on a purchase of merchandise on account would include:

A)a debit to Merchandise Inventory and a credit to Accounts Payable
B)a debit to Cost of Goods Sold and a credit to Merchandise Inventory
C)a debit to Accounts Payable and a credit to Merchandise Inventory
D)a debit to Merchandise Inventory and a credit to Cost of Goods Sold

Question 47

Bally Boutique uses a perpetual inventory system when recording its purchases and sales of inventory. The business sells $6,000 of goods to charge account customers and the goods originally cost Bally, $3,000. The entry to record the sale would include:

A)a debit to Merchandise Inventory for $3,000 and a credit to Cost of Goods Sold for $3,000
B)a debit to Accounts Receivable for $3,000 and a credit to Sales for $3,000
C)a debit to Cost of Goods Sold for $3,000 and a credit to Merchandise Inventory for $3,000
D)a debit to Sales for $6,000 and a credit to Merchandise Inventory for $6,000

Question 48

The journal entry to record the purchase on account of $900 of merchandise with freight of $65 prepaid by their supplier and added to the invoice is:

A)debit Accounts Receivable $965; credit Sales $965
B)debit Purchases $900, debit Freight In $65; credit Accounts Payable $965
C)debit Purchases $965; credit Accounts Payable $965
D)debit Accounts Payable $965, credit Freight in $65; credit Purchases $900

Question 49

The amount of Freight In for a period is reported on:

A)the balance sheet
B)the statement of owner's equity
C)the income statement.
D)it is not reported on any statement.

Question 50

During March a firm purchased $36,500 of merchandise and paid freight charges of $5,280. If the net delivered cost of purchases at the end of March is $33,080, what is the total purchase returns for March?

A)$8,700
B)$3,420
C)$1,860
D)$0

Question 51

If a business pays $1,100 on account to a creditor, the effect of the payment is a decrease to cash and a(n):

A)decrease to Fees Income.
B)decrease to accounts payable.
C)increase to accounts receivable.
D)increase of capital.

Question 52

If the perpetual inventory system is used to record the purchase and sale of goods, the account used to record shipping charges is the:

A)merchandise inventory account.
B)purchases account.
C)freight in account.
D)transportation in account.

Question 53

A firm had purchases of $14,600, freight charges of $870, and purchases returns and allowances of
$1,350 during one month. Its net delivered cost of purchases was:

A)$12,380.
B)$14,120.
C)$15,080.
D)$16,820.

Question 54

For good internal control of purchases, businesses should do all of the following except:

A)Ensure that the same person is involved in the process of buying, receiving and paying for the goods.
B)Another person other than the person requesting the purchase should write the check for the payment of the invoice.
C)Computations on the invoice should be checked for accuracy.
D)Goods should be carefully checked when received.

Question 55

Hugh Snow returned merchandise to Farley Co. The entry on Hugh Snow's books to record the return of merchandise to Farley Co. would include a:

A)Debit Sales Returns and Allowances
B)Debit Accounts Payable
C)Credit to Purchases Returns and Allowances
D)Debit to Account Receivable

Question 56

The journal entry to record the purchase of merchandise on account for $2,750 with freight of $125 prepaid by their supplier and added to the invoice is:

A)debit Accounts Payable $2,875, debit Freight in $125; credit Purchases $2,750
B)debit Accounts Receivable $2,875; credit Sales $2,875
C)debit Purchases $2,750, debit Freight In $125; credit Accounts Payable $2,875
D)debit Purchases $2,750; credit Accounts Payable $2,750

Question 57

If the perpetual inventory system is used to record the purchase and sale of goods, the account used to record the return of merchandise is the:

A)merchandise inventory account
B)purchases account
C)purchase returns and allowances account
D)transportation in account

Question 58

A creditor's account in the accounts payable ledger has a balance of $10,560 as of April 1. After a transaction of $12,800 is posted from the purchases journal and a transaction of $9,200 is posted from the cash payments journal, the balance of the creditor's account on April 30 is:

A)$14,160 credit
B)$9,200 debit
C)$12,800 debit
D)$6,960 credit

Question 59

The amount of the purchases for a period is presented as:

A)an asset on the balance sheet.
B)an expense on the income statement.
C)an expense on the cost of purchases statement.
D)contra revenue on the income statement.

Question 60

To record a return of merchandise purchased for cash on the books of the buyer, the accountant would:

A)debit Purchases Returns and Allowances and credit Cash.
B)debit Purchases and credit Purchases Returns and Allowances.
C)debit Purchases Returns and Allowances and credit Purchases.
D)debit Cash and credit Purchases Returns and Allowances.

Question 61

The Freight In account should have a(n)________ balance.

Question 62

Individual creditor's accounts in the accounts payable subsidiary ledger normally have ________ balances.

Question 63

Purchases of merchandise on credit should be recorded in the ________ journal.

Question 64

Good internal control requires a ________ of duties.

Question 65

For each of the transactions listed below, identify the journal that should be used to record the transaction. Use CR for cash receipts journal, CP for cash payments journal, S for sales journal, P for purchases journal, and G for general journal.
A. Issued a check to a supplier as a payment on account.
B. Purchased merchandise; the supplier's invoice, which includes a freight charge, has payment terms of 2/10, n/30.
C. Returned some damaged merchandise to a supplier and received a credit memorandum.
D. Received an allowance for some merchandise that was slightly damaged but can be sold at a reduced price; received a credit memorandum.
E. Purchased merchandise with terms of net 30 days.

Question 66

A list of creditors and the balances owed to them is called a schedule of ________.

Question 67

In a small firm, the creditor accounts are placed in order in the accounts payable ledger.

Question 68

Purchases returns and allowances are recorded in the ________ journal if a firm does not have a purchases returns and allowances journal.

Question 69

Read the description of the following transactions that are recorded during the accounting period for Hughley Consulting Services. The company uses a periodic inventory system. Determine the account to be debited and the account to be credited.

A)Issued a check to a supplier as a payment on account.
B)Purchased merchandise; the supplier's invoice, which includes a freight charge, has payment terms of 2/10, n/30.
C)Returned some damaged merchandise to a supplier and received a credit memorandum.
D)Received an allowance for some merchandise that was slightly damaged but can be sold at a reduced price; received a credit memorandum.
E) Purchased merchandise with terms of net 30 days.

Question 70

When an accounts payable ledger is used, the Accounts Payable account in the general ledger becomes a(n)account.

Question 71

The form sent to the supplier to order goods is called a(n)________.

Question 72

The purchases journal for Wright Company is shown below. Describe how the amounts would be posted to the general ledger accounts.

Question 73

For each of the transactions listed below, identify the journal that should be used to record the transaction. Use CR for cash receipts journal, CP for cash payments journal, S for sales journal, P for purchases journal, and G for general journal.

A)Issued a check to a supplier as a payment on account.
B)Received an allowance for some merchandise that was slightly damaged but can be sold at a reduced price. Received a credit memorandum.
C)Returned some damaged merchandise to a supplier and received a credit memorandum.
D)Purchased merchandise with terms of net 30 days.
E) Purchased merchandise with terms of 2/10, n/30. The supplier's invoice includes a freight charge.

Question 74

The purchases journal for Carothers Company is shown below. Describe how the amounts would be posted to the general ledger accounts.

Question 75

After damaged goods are ________, the supplier issues a(n)credit memorandum.

Question 76

Explain each of the following credit terms.

A)n/30
B)n/10 EOM
C)2/10, n/30
D)1/10, n/20
E) 3/5, n/30

Question 77

Read the description of the following transactions that are recorded during the accounting period for Drummond Consulting Services. The company uses a periodic inventory system. Determine the account to be debited and the account to be credited.

A)Purchased merchandise with terms of 2/10, n/30. The supplier's invoice includes a freight charge.
B)Received an allowance for some merchandise that was slightly damaged but can be sold at a reduced price. Received a credit memorandum.
C)Returned some damaged merchandise to a supplier and received a credit memorandum
D)Purchased merchandise with terms of net 30 days
E) Issued a check to a supplier as a payment on account

Question 78

The entry to record a return of merchandise purchased on credit includes a debit to the________ account in the general ledger.

Question 79

An allowance received from a creditor is posted to the ________ column of the creditor's account.

Question 80

Whenever a sales department needs goods, it sends the purchasing department a form called a(n)
________.