Acounting Chapter 4

Perpetual and Periodic

What are the two types of accounting for invertory systems?

Perpetual System

Continoulsy records, updates and tracks inventory levels and cost of goods sold

Debited to Inventory

Under the perputual system, purchases of merchandise are ____ to ______

Debited to Inventory

Under the perpetual system freight-in is ____ to _____

Credited to Inventory

Under the Perpetual System purchase returns, allowances and purchase discounts are ____ to _____

Subsidary Records

show quanitity and cost of each type of inventory on hand

Current Asset

Merchandise inventory is a _____

Expense, Cost of Goods Sold

Once merchandise inventory is sold, it is converted to ______

Periodic System

Determines inventory and cost of goods sold at the end of the accounting period through a physical count

Debited to purchases

Under the period system, purchases of merchandise are _____ to _____

physical count

Under the periodic system, ending inventory is determined by

Controls the Asset

A company recoginzes inventory and accounts payabke at the time _____

Passage of Title

Legal transfer if ownership rights for goods or property from seller to buyer

Allowances

In the event a product contains a defect, sellers might provide _____

Allowances

Sales Price Reduction

Sales return and allowances

The account created for returns is called

Contra-Revenue

A sales return and allowance account is a _____ account

Sales revenue on the income statement

The sales return and allowance account reduces _____

2/10, n/30

Buyer receieves a 2% price discount if pay is made in 10 days, if buyer does not pay within 10 days, the full amount is due in 30 days. This is called a ____

Contra-Revenue Account

The sales discount account is a _______

Sales discount account

Used by sellers to record sales discounts

interest rate

2/10,n/30 have a high _______

Income Statement

The sales discount account appears on the

Income Statement

The Sales Returns and Allowances account appears on the

FOB Shipping Point

Ownership of the goods passes to the buyer when the public carrier accepts the goods from the seller.

Free on board

FOB meaning

Buyer

At FOB shipping point, who pays the freight cost?

FOB destination

Ownership of the goods remains with the seller until the goods reach the buyer.

Seller

At FOB destination, who pays the freight cost?

Gross Profit

Sales revenue less cost of goods sold is called

Average Cost

Prices items in the inventory on the basis of the average cost of all similar goods available during the period.

Average Cost

Which cost flow assumption is not as subject to income manipulation?

First in, First Out (FIFO)

Assumes goods are used in the order in which they are purchased

lower cost of goods sold than LIFO

In a period of rising prices, FIFO will have

LIFO

In a period of increasing prices, which inventory flow assumption will result in the lowest amount of income tax expense?

FIFO

In periods of rising prices, the inventory method which results in the inventory value on the balance sheet that is closest to current cost is the

FIFO

In periods of inflation, phantom or paper profits may be reported as a result of using

Management

The selection of an appropriate inventory cost flow assumption for an individual company is made by

Cost of goods sold

The total cost of merchandise sold during the period.

Operating expense

Freight costs incurred by the seller are an

Inventory

In a perpetual inventory system, a return of defective

merchandise by a purchaser is recorded by crediting

Gross Profit Method

Beginning inventory plus purchases equal total goods to

be accounted for

cost of goods purchased

Under the gros profit method, each of hte folowing items ear estimated except for the