True/False
Indicate whether the
statement is true or false.
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1.
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The cost account Purchases is used only to record the selling price of the
merchandise sold.
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2.
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A corporation cannot exist independent of its owners.
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3.
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A corporation can own property, incur liabilities, and enter into contracts in
its own name.
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4.
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Information in a corporation's accounting system is kept separate from the
personal records of its owners, and this is an application of the Going Concern accounting
concept.
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5.
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The selling price of merchandise must be greater than the cost of merchandise
for a business to make a profit.
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6.
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When purchases are recorded at their cost, including any related shipping costs
and taxes, the Historical Cost accounting concept is being applied.
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7.
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Recording entries in a journal with special amount columns does not save
time.
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8.
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A special journal used to record only purchases of merchandise on account is
called a purchases journal.
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9.
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A memorandum is the source document for recording a purchase on account
transaction.
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10.
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By listing the quantity, the description, the price of each item, and the total
amount purchased, the Historical Cost accounting concept is applied.
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11.
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A purchase invoice lists only the total cost of the merchandise.
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12.
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A purchase on account transaction decreases the amount owed to a vendor.
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13.
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A cash payments journal includes a special amount column for the cash account
and the accounts payable account.
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14.
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The source document for most cash payments is the check issued.
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15.
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When supplies are purchased for use in the business, the amount is recorded in
the purchases account.
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16.
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A reduction in the list price granted to customers is called a trade
discount.
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17.
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A special journal entry is made to show the amount of a trade discount.
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18.
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The terms of sale 2/15, n/30 mean the 2% of the invoice amount may be deducted
if paid within 15 days of the invoice date or the total invoice amount must be paid within 30
days.
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19.
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Purchases discounts are recorded in a general journal account called Purchases
Discount.
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20.
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The contra account Purchases Discount has a normal debit balance.
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21.
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Cash on hand always equals the recorded amount.
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22.
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The petty cash account Cash Short and Over is a temporary account.
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23.
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A journal is proved and ruled only at the end of a fiscal period.
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24.
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The normal account balance of Purchases Returns and Allowances is a
debit.
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25.
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The source document for a purchases return is a debit memorandum.
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26.
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When supplies are purchased on account, the store supplies account balance
increases and the accounts payable account balance increases.
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27.
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Buying supplies on account is recorded in the general journal.
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28.
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Errors found in the process of totaling and proving a journal page do not need
to be corrected until the end of the fiscal period.
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29.
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To begin a new journal page, the totals from the previous journal page are
carried forward to the next journal page.
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30.
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All vendors offers purchases discounts.
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Multiple Choice
Identify the
choice that best completes the statement or answers the question.
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31.
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A business expecting to make money and continue in business indefinitely is
applying the accounting concept ____.
a. | Business Entity | c. | Objective Evidence | b. | Going Concern | d. | Historical Cost |
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32.
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A journal used to record only one kind of transaction ____.
a. | is a special journal | b. | is a general journal | c. | must be used by all
businesses | d. | increases the time required to journalize
transactions |
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33.
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The price a business pays for goods it purchases to sell is ____.
a. | cost of goods sold | c. | markup | b. | cost of merchandise | d. | cost of sales |
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34.
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The amount added to the cost of merchandise to establish the selling price is
____.
a. | cost of goods sold | c. | cost of sales | b. | cost of merchandise | d. | markup |
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35.
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The purchases account is classified as ____.
a. | an expense account | c. | a liability account | b. | an asset account | d. | a cost account |
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36.
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Recording the actual amount paid for merchandise or other items bought is an
application of the accounting concept ____.
a. | Business Entity | c. | Historical Cost | b. | Objective Evidence | d. | Going Concern |
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37.
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A purchases journal is used to journalize ____.
a. | all purchase transactions | b. | all transactions | c. | all purchase of
merchandise on account transactions | d. | adjusting
entries |
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38.
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A journal amount column headed with an account title is a ____.
a. | general amount column | c. | general credit column | b. | general debit
column | d. | special amount
column |
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39.
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Writing an account title in the Account Title column of a journal is not
necessary if the journal has ____.
a. | a Cash Debit column | c. | a Source Doc. column | b. | a Post. Ref. column | d. | special amount
columns |
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40.
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A form describing goods sold, the quantity, and the price is ____.
a. | a check | c. | an invoice | b. | a receipt | d. | a memorandum |
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41.
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The source document for recording a purchase on account transaction is a
____.
a. | purchase invoice | c. | memorandum | b. | sales invoice | d. | check |
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42.
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An agreement between a buyer and a seller about payment for merchandise is the
____.
a. | purchase invoice | c. | sales invoice | b. | correcting entry | d. | terms of sale |
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43.
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The entry to journalize a purchase of merchandise on account is ____.
a. | debit Accounts Payable; credit Merchandise | b. | debit Accounts
Payable; credit Purchases | c. | debit Purchases; credit Accounts
Payable | d. | debit Purchases; credit Merchandise |
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44.
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A liability account that summarizes the amounts owed to all vendors is titled
____.
a. | Accounts Payable | c. | Sales | b. | Accounts Receivable | d. | Purchases |
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45.
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A cash payments journal is used to journalize ____.
a. | all cash transactions | c. | adjusting entries | b. | only cash payment
transactions | d. | closing
entries |
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46.
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Supplies bought for use in a business are recorded in the ____.
a. | supplies expense account | c. | supplies
account | b. | purchases account | d. | cash account |
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47.
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The entry to journalize buying supplies for cash is ____.
a. | debit Supplies; credit Cash | b. | debit Accounts Payable; credit
Supplies | c. | debit Purchases; credit Cash | d. | debit Purchases; credit
Supplies |
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48.
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The entry to journalize payment to replenish a petty cash fund is ____.
a. | debit Cash; credit Petty Cash | b. | debit Petty Cash; credit
Cash | c. | debit the appropriate expense and other accounts; credit Cash | d. | debit the
appropriate expense and other accounts; credit Petty Cash |
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49.
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What is the formula for calculating the invoice amount?
a. | Total List Price + Trade Discount = Invoice Amount | b. | Total List Price
- Trade Discount = Invoice Amount | c. | Total List Price
´ Trade Discount = Invoice Amount | d. | Total List Price
¸ Trade Discount = Invoice Amount |
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50.
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The retail price listed in a catalog or on an Internet site is called the
____.
a. | list price | c. | full price | b. | markup | d. | trade discount |
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51.
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A business that buys and resells merchandise to retail merchandising businesses
is known as a ____.
a. | vendor | c. | corporation | b. | wholesale merchandising
business | d. | partnership |
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52.
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A form prepared by the customer showing the price deduction taken by the
customer for returns and allowances is a ____.
a. | memorandum | c. | purchases allowance | b. | purchase invoice | d. | debit
memorandum |
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53.
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A deduction that a vendor allows on the invoice amount to encourage prompt
payment is called ____.
a. | a cash discount | c. | a markup | b. | terms of sale | d. | a trade
discount |
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54.
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The amount added to the cost of merchandise to establish the selling price is
known as the ____.
a. | trade discount | c. | list price | b. | cash discount | d. | markup |
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55.
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Special amount columns are used for transactions that occur ____.
a. | once every month | c. | infrequently | b. | frequently | d. | once during the fiscal
year |
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