Deck 6: Accounting for Retailing

Question 1

Which of the following need not appear on a tax invoice?

A)The words 'tax invoice'
B)The ABN of the issuing entity
C)The date of issue of the invoice
D)The signature of the person authorising the invoice

Answer 1

The signature of the person authorising the invoice

Question 2

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

A)GST collections
B)GST outlays
C)Purchases
D)Discount received

Answer 2

A

Question 3

Sales Returns and Allowances is what type of account?

A)Contra to sales revenue
B)Liability
C)Contra to an asset
D)Expense

Answer 3

A

Question 4

The primary purpose of cash)settlement discounts is to:

A)Convince the customer to buy the goods on credit
B)Facilitate the quoting of prices to different customer groups
C)Reduce the invoice price of the goods
D)Encourage the customer to settle their account early

Question 5

The specific term used by a retailer for income is:

A)Interest received
B)Service income
C)Sales
D)Fees

Question 6

Simon sold goods to Lauren for $3,300 including GST.Lauren paid her account within the discount period and received a settlement discount of 2%.Using the gross method the entry in Simon's books to record the payment from Lauren is:

A)Debit bank $3,234,debit discount allowed $60,debit GST collections $6; credit accounts receivable $3,300
B)Debit bank $3,234,debit discount allowed $66; credit accounts receivable $3,300
C)Debit bank $3,240,debit discount allowed $60; credit accounts receivable $3,300
D)Debit bank $3,234,debit discount allowed $66,debit GST collections $6; credit accounts receivable $3,306

Question 7

Under GST Goods and Services Tax legislation in Australia a tax invoice must be issued for all sales in excess of:

A)$75
B)$20
C)$10
D)$100

Question 8

Which statement relating to inventory is not correct?

A)It is classified as a non-current asset in the balance sheet
B)It makes up a significant portion of a retailer's assets
C)It is a very active asset,continually being acquired,sold and replaced
D)Another name for inventory is stock-in-trade

Question 9

The main difference between a service and a retail business is that service businesses:

A)Sell directly to consumers
B)Buy and sell in bulk
C)Convert raw materials into finished goods
D)Sell services rather than goods

Question 10

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

A)Prepaid expenses
B)Current assets
C)Purchases
D)Inventory

Question 11

B sold goods to A for $2 000.A paid his account one month later.What is the correct entry in B's books to record the payment by A? Ignore GST.

A)Debit bank $2 000; credit sales $2 000
B)Debit accounts receivable $2 000; credit equity $2 000
C)Debit bank $2 000; credit accounts receivable $2 000
D)Debit accounts receivable $2 000; credit sales $2000

Question 12

The entry to record the return of goods to a supplier under the perpetual inventory system,including GST,is:

A)Debit Inventory,credit Purchases Returns,credit GST outlays
B)Debit Accounts Payable,credit Purchases,credit GST outlays
C)Debit Inventory,debit GST outlays,credit Accounts Payable
D)Debit Accounts Payable,credit Inventory,credit GST outlays

Question 13

The average length of time it takes for a retail business to acquire inventory,sell it to its customers and collect the cash owing is called the:

A)Inventory turnover
B)Operating cycle
C)Cost of sales
D)Gross profit

Question 14

Which of these is not an advantage of the perpetual inventory system?

A)Allows stock losses to be identified
B)Provides reordering information
C)Allows cost of sales to be calculated at any time
D)A stock-take never has to be carried out

Question 15

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

A)Prepaid expenses
B)Selling expenses
C)Purchases
D)Inventory

Question 16

Under the periodic inventory system a income statement cannot be prepared without a/an ____________.It is only after a/an ___________ that the cost of sales can be estimated.

A)Error check
B)Virus scan
C)Stocktake
D)Audit

Question 17

What is the correct layout for a retailer's income statement?

A)Sales revenue - cost of sales = gross profit,
B)Sales revenue - expenses = profit
C)Sales revenue - cost of sales = gross profit - expenses = profit
D)Sales revenue - cost of sales - expenses = gross profit

Question 18

Under the perpetual inventory system what is the correct entry to record the cost of the sale of 2 electric guitars sold to a customer at $550 per guitar including GST? The guitars were originally purchased on credit at $250 each plus GST of $25 per guitar.

A)Debit cost of sales $1 100; credit sales $1 100
B)Debit cost of sales $500; credit inventory $500
C)Debit cost of sales $1 000; credit inventory $1 000
D)Debit cost of sales $500,debit GST outlays $50; credit inventory $550

Question 19

In Australia,where most accounting is computerised,the use of the periodic inventory system is declining.Which of the following businesses is still most likely to use the periodic approach to accounting for inventory?

A)Chemist shop
B)Supermarket
C)Fruit and vegetable shop
D)Service station

Question 20

Under the perpetual inventory system the entry to record the cost price of goods sold on credit is:

A)Debit Inventory,credit Cost of sales
B)Debit Cost of sales,credit Inventory,credit GST Outlays
C)Debit Cost of sales,credit Inventory
D)Debit Cost of sales,credit Purchases

Question 21

If beginning inventory was $10 000,purchases during the period totalled $25 000,freight-in was $1,000 and ending inventory was $11 000,calculate the cost of sales?

A)$26 000
B)$25 000
C)$24 000
D)$15 000

Question 22

Which of the following is not true of the periodic inventory system?

A)Cost of sales can be calculated only after a physical stocktake
B)It uses a Purchases account
C)It is the system employed by most businesses in Australia
D)It is the simplest system

Question 23

In the Income Statement for a retailer it is true that:

A)The cost of sales section is identical no matter whether the periodic or perpetual system of inventory recording is used
B)Rent revenue is added to sales revenue to calculate gross profit
C)Under the periodic system freight inwards is added to the cost of purchases
D)Expenses are classified into the groupings Selling Expenses; Distribution Expenses and Administrative and Finance expenses.

Question 24

With the periodic inventory system what does the opening balance in the inventory account represent?

A)Inventory on hand at the end of the previous period as determined by a physical stocktake
B)Inventory on hand at the end of the current period as determined by a physical stocktake
C)The book figure for current inventory adjusted for all purchases and sales
D)Inventory loss

Question 25

Expenses resulting from the marketing and sale of inventory including,advertising,salesperson's salaries,sales commissions and delivery expenses can be classified as S__________ and D__________ expenses in the income statement of a retailer.

Question 26

Under the perpetual inventory system an inventory loss can be calculated as the difference between:

A)The ledger balance of the inventory account and the total of the physical stocktake
B)Sales less cost of sales
C)Inventory at start less inventory at end
D)A inventory loss cannot be calculated using the perpetual inventory system

Question 27

Assuming the use of the perpetual inventory method which of these entries would be a closing entry at the end of the accounting period?

A)Debit Inventory; credit Profit and Loss Summary
B)Debit Profit and Loss Summary; credit Inventory
C)Debit Profit and Loss Summary; credit Purchases
D)Debit Profit and Loss Summary; credit Cost of Sales

Question 28

For sales over $50 a retail business must issue a tax __________.

Question 29

Cost of goods available for sale is equal to:

A)Net purchases - ending inventory
B)Beginning inventory - ending inventory
C)Beginning inventory + net purchases
D)Beginning inventory + net purchases - ending inventory

Question 30

I __________ consists of goods acquired for resale in the normal course of business.

Question 31

The purchases returns and allowances account is described as a c__________ expense account as it is always deducted from purchases in the financial reports.

Question 32

Counting all inventory units on hand is known as a s__________.

Question 33

Calculate purchases for 2011: - $\quad$ Inventory $31 / 12 / 2010 \quad \$ 32500$
- $\quad$ Inventory $31 / 12 / 2011 \quad 34000$
- $\quad$ Cost of sales during $2011 \quad \$ 128000$

A)$126 500
B)$123 500
C)$129 500
D)$132 500

Question 34

The periodic inventory system is a shortcut system that does not record the ______________ of each sale.

A)Cost price
B)Selling price
C)Date
D)Dollar value

Question 35

The formula for calculating the gross profit ratio is:

A)Gross profit after tax/sales
B)Cost of sales/sales
C)Gross profit /sales
D)Sales/gross profit

Question 36

Z,sold goods to X on credit at a price of $4,400 including GST.The entry to record this transaction in Z's books under either the perpetual or periodic inventory system is ignore the transfer to COS required under the perpetual system):

A)Debit accounts receivable $4,400,credit sales $4,400

Question 37

Which statement concerning the gross profit ratio is not true?

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

Question 38

Assume that the net price method of recording purchases is used and the business uses the perpetual method of inventory recording.Record the purchase of goods for $4,000 on credit,on terms of 2/10,n/30.Ignore GST.

A)Debit Inventory $4,000; credit Accounts payable $4,000
B)Debit Inventory $3,920; Debit Discount Allowed $80: credit Accounts payable $4,000
C)Debit Inventory $3,920; credit Accounts payable $3,920
D)Debit Purchases $4,000; credit Accounts payable $3,920; credit discount allowed $80.

Question 39

The __________ account is an expense account used in a periodic inventory system to accumulate the cost of inventory acquired for resale.

Question 40

ABN stands for A__________ B__________ N__________

Question 41

The p__________ inventory system provides a continuous and detailed record of the goods on hand and the cost of sales.

Question 42

The __________ __________ ratio measures the proportion of sales which represents gross profit.

Question 43

The p___________ inventory system is a shortcut system that determines cost of sales by taking a physical count of inventory and assuming any goods not on hand have been sold.