True or false 1. Sales of $350,000 and net sales of $323,000 could reflect sales

Question

True or false

1. Sales of $350,000 and net sales of $323,000 could reflect sales discount of $27,000

2. Under both the periodic and perpetual inventory systems, the temporary account of Purchases Returns and Allowances is used to accumulate the cost of all returns and allowances for a period

3. Cost of goods sold is reported on both the income statement and the balance sheet

4. A perpetual inventory system gives a continual record of the amount of inventory available for sale

5. When a customer returns merchandise, the seller would debit Sales Returns and Allowances and credit Accounts Receivable.

6. Merchandise inventory is reported in the long-term assets section of the balance sheet.

7. Cost of goods sold represents the cost of buying and preparing merchandise for sale.

8. Sales Discounts and Sales Returns and Allowances are contra sales accounts

9.  Accounts unique to merchandising companies include Merchandise Inventory, Sales, Sales Discounts, Sales Returns and Allowances, and Cost of Goods Sold

10. Each sales transaction of a seller that uses a perpetual system involves recognizing both revenue and cost of goods sold

Explanation / Answer

(1) True.

Difference = $(350,000 - 323,000) = $27,000 which could accrue due to one or more of Sales allowance, Sales returns or Sales discount.

(2) False

(3) False

Cost of goods sold is reported only in income statement.

(4) True

(5) True

(6) False

Inventory is reported under Current assets.

(7) True

(8) True

(9) False

These are common items to almost every type of companies.

(10) True.

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