Study Module/ Homework Questions

Questions I got wrong:

• When using the periodic system, purchases are recorded in the Purchases account as a debit (instead of Merchandise Inventory) and Accounts Payable as a credit.

• To calculate gross profit percentage, divide Gross Profit by Net Sales Revenue

• If not paid within the discount period, the full amount of $5,000 is due. Since the transaction at the time of the sale would have taken the $150 ($5,000 * .03) discount away from the debit to Accounts Receivable and credit to Service revenue, the $150 discount is forfeited. So Cash is debited for the full amount of $5,000, Sales Discounts Forfeited is credited for the discount of $150, and Accounts Receivable is credited for the amount from the original entry of $4,850.

• When a customer returns merchandise to the seller, the seller records two journal entries. Debit Refunds Payable and credit Accounts Receivable for the amount returned at sales price. Debit Merchandise Inventory and credit Estimated Returns Inventory for the merchandise returned at cost.  

• Merchandise Inventory is credited for the amount of the discount,

• Debit Merchandise Inventory and credit Estimated Returns Inventory for the merchandise returned at cost.

• Gross Profit less Total Operating Expenses is the Operating Income.

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• Operating Income does not appear on the single-step income statement, which groups all revenues together and all expenses together without calculating other subtotals.