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Accounting Chapter 14 Test Review

This document contains a 14 question true/false quiz, 25 multiple choice questions, and 6 short answer questions about accounting concepts related to merchandising businesses. Some of the key topics covered include recording sales, cash receipts, credit memos, sales returns and allowances, accounts receivable, inventory, and contra accounts. The short answer section provides additional accounting transactions to record and questions to answer related to a sample merchandising business.

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Zayli Morales
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325 views3 pages

Accounting Chapter 14 Test Review

This document contains a 14 question true/false quiz, 25 multiple choice questions, and 6 short answer questions about accounting concepts related to merchandising businesses. Some of the key topics covered include recording sales, cash receipts, credit memos, sales returns and allowances, accounts receivable, inventory, and contra accounts. The short answer section provides additional accounting transactions to record and questions to answer related to a sample merchandising business.

Uploaded by

Zayli Morales
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
  • Matching
  • True/False
  • Short Answer
  • Problem

Accounting Chapter 14 Test

True/False
Indicate whether the statement is true or false.

____ 1. When a retail merchandising business sells goods to a customer, the amount of the sold merchandise is
credited to the Merchandise Inventory account.

____ 2. Sales taxes collected by a business represent a liability until they are paid.

____ 3. The revenue account for a merchandising business is usually called Sales.

____ 4. In both manual and computerized accounting systems, charge customers' accounts do not have account
numbers.

____ 5. Bankcard sales are recorded like cash sales because a business expects to receive its cash within a few days of
the deposit.

____ 6. The source documents for recording cash sale transactions and cash receipts from charge customers are the
same.

____ 7. Cash discounts are offered by a business to encourage charge customers to pay promptly.

____ 8. The increase side of the account Sales Discounts is a credit.

____ 9. The Sales Returns and Allowances account is important to a business because it shows the amount of credit
granted to dissatisfied customers.

____ 10. The balance side of any contra account is always on the side opposite the balance side of the account it
decreases.

____ 11. Credit memos result in credits to or increases in customer accounts.

____ 12. If Marie Lacey's account was incorrectly credited instead of Maria Lopez's account in the accounts receivable
subsidiary ledger, a correcting entry must be recorded in the general journal.

____ 13. When a diagonal line is placed in the Posting Reference column of the general journal, it indicates that the
amount is posted twice—once to a controlling account and once to a subsidiary ledger account.

Matching

Match each item with the correct statement below.


a. accounts receivable subsidiary ledger n. merchandising business
b. bankcard o. receipt
c. cash discount p. retailer
d. cash receipt q. sale on account
e. cash sale r. sales
f. charge customer s. sales allowance
g. controlling account t. sales discount
h. contra account u. sales return
i. credit card v. sales slip
j. credit memorandum w. sales tax
k. credit terms x. subsidiary ledger
l. inventory y. wholesaler
m. merchandise
____ 14. A business that buys goods and then sells those goods to customers for a profit is called a(n) ____.
____ 15. A reduction in a sales invoice that is given to a customer for prompt payment is a ____.
____ 16. The customer to whom a sale on account is made is called a(n) ____.
____ 17. A(n) ____ occurs when a customer buys an item with a promise to pay for it later.
____ 18. A business that sells to the final user is known as a ____.
____ 19. Charge customers often use a(n) ____ when they make a purchase on account.
____ 20. A levy imposed by most states on the retail sales price of goods and services is a(n) ____.
____ 21. Full credit or a cash refund granted by a merchant to a customer for unsatisfactory merchandise is a(n) ____.
____ 22. ____ refers to the items of merchandise a business has in stock.
____ 23. The balance of a(n) ____ must agree with the balance of the accounts in its related subsidiary ledger.
____ 24. A price reduction offered to a customer who keeps damaged or defective merchandise is a(n) ____.
____ 25. ____ set out the time period for a customer to make full payment of an invoice.
____ 26. A(n) ____ is a source document prepared by the seller to notify a charge customer that the customer's account
will be decreased by the amount of a return or allowance.
____ 27. A(n) ____ refers to cash that is received by a business.
____ 28. A(n) ____ is a form that lists the details of a sale: the date of the sale, the name of the customer, and the
description, quantity, and price of the goods sold.
____ 29. ____ are the goods a business buys for resale to its customers.
____ 30. When a customer pays for merchandise in full at the time of purchase, the transaction is called a ____.
____ 31. A(n) ____ contains accounts for all charge customers.
____ 32. A form that serves as a record of cash received from a charge customer is called a ____.
____ 33. A ledger or book of accounts that is summarized in a controlling account in the general ledger is called a(n)
____.
____ 34. A business that sells to retailers is called a(n) ____.
____ 35. A(n) ____ is issued by a bank and is honored by many businesses.

Short Answer
On September 22, Illuminations Lighting Center sold $6,400 in merchandise on account to Sunshine Builders,
a charge customer. A 5 percent sales tax applied to the sale. The date of the sales slip was September 22, and
the credit terms were 2/10, n/30. Answer the following questions.

36. What is the last day Sunshine Builders can pay the invoice and still receive a discount?

37. What would be the amount of the cash discount?

38. What amount would Sunshine Builders pay if it sends a check to Illuminations Lighting Center on or before
the discount date? Assume that the sales tax amount owed is not reduced by the cash discount rate.

39. What would be the amount credited to Sunshine Builders' account if it pays within the discount period?

40. What is the last day to pay the net amount of the invoice?

Problem

41. A. Record the following transactions on page 26 of the general journal provided.
Transactions:
June 1 Sold on account to Ariana Marquez merchandise worth $1,750.00 plus
sales tax of $87.50, Sales Slip 422.
7 Received a check from Mariner High School to apply on account, $275.00,
Receipt 523.
11 Issued Credit Memo 113 to Ariana Marquez for the return of merchandise
originally sold on account, $150.00 plus sales tax of $7.50.
17 Sold merchandise on account to GTS, Inc., $2,400.00 plus $120.00 in sales
taxes, Sales Slip 423. Credit terms were 2/10, n/30.
25 Received a check for $1,000.00 from Ariana Marquez to apply on account,
Receipt 524.
27 Received a check from GTS, Inc., for $2,472.00 in payment of its account
balance of $2,520.00 less a 2 percent cash discount of $48.00, Receipt 525.
29 Sold merchandise on account to Mariner High School for $750.00, Sales
Slip 424.
30 Cash sales for the period totaled $1,152.00 plus $57.60 in sales taxes, Tape
630.
30 Bankcard sales for the period totaled $4,595.00, plus sales taxes of
$229.75, Tape 630.

B. Use the general journal to answer the following questions.

1 What were the total sales for the month?


2. What were the total sales on account for the month?
3. Do charge sales, cash sales, or bankcard sales represent the largest percentage of the
total sales for the month?
4. What were the total sales returns and allowances for June?
5. What percentage of the total sales do the total sales returns and allowances
represent?
6. What were net sales for the period (Sales minus the balance of its two related contra
accounts)?

Common questions

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Sales taxes collected by a business represent a liability until they are paid. This means that when a business collects sales taxes, it records them as a liability on its balance sheet rather than as revenue. The liability account reflects the business's obligation to pay the collected tax to the government .

Offering sales discounts impacts a business's revenue accounts as it reduces the total revenue recognized. The discounts are recorded as a deduction in the Sales Discounts account, which is a contra account to sales revenue. This deduction leads to lower net sales figures in financial statements, but it can stimulate faster customer payments, potentially improving cash flow despite reduced gross revenue .

A credit memorandum is prepared by the seller to notify a charge customer that their account will be decreased, typically due to returns or allowances. The credit memo ensures accurate updating of the customer's account and the business's sales records, effectively reflecting reduced income and accounting for product returns. This process aids in maintaining correct accounts receivable balances and transparent transaction records .

Businesses offer cash discounts to encourage quick payment by charge customers, which improves cash flow. When a cash discount is applied, the business records a reduction in the Accounts Receivable and in the Sales Discounts account (a contra revenue account), which ultimately decreases net sales. This practice incentivizes timely payments and can reduce the risk of bad debts .

Sales returns and allowances are recorded in a contra revenue account, which offsets revenue generated from sales. This account is important because it tracks credits granted to dissatisfied customers for reasons like returns or allowances. This information helps businesses manage customer relations and product quality issues and provides insights into the financial impact of returns on overall sales performance .

A controlling account is a general ledger account that summarizes the total balance of individual accounts in a related subsidiary ledger. The balance of the controlling account must always equal the sum of the balances of the individual accounts in the subsidiary ledger. This relationship ensures accuracy and consistency in financial reporting by allowing detailed tracking while maintaining a summarized view for overall balance sheets .

The last day a customer can pay an invoice to receive a cash discount is determined by the credit terms stated, such as 2/10, n/30, which means a 2% discount is available if paid within 10 days. To calculate the cash discount, multiply the invoiced amount (excluding sales tax) by the discount percentage. The total payment before the discount period includes the full sales tax amount .

Credit terms such as 2/10, n/30 encourage customers to pay sooner to take advantage of discounts, thus improving the seller's cash flow. Accounting implications include earlier recognition of cash, potential reductions in outstanding accounts receivable, and adjustments in revenue accounts to reflect discounts taken. This practice not only enhances liquidity but also strengthens customer relationships through incentivized financial practices .

If an account is incorrectly credited, a correcting entry must be recorded in the general journal. The correcting entry adjusts the incorrect account and the correct account to ensure that the subsidiary ledger aligns with the controlling account in the general ledger. This process helps maintain accurate financial records .

Bankcard sales are recorded similarly to cash sales because the business expects to receive the cash from the bank promptly. This practice ensures that both types of transactions are treated with equal immediacy in cash flow reporting, thus maintaining balanced and accurate accounting of cash during the period .

Accounting Chapter 14 Test True/False Indicate whether the statement is true or false. ____ 1. When a retail merchan
g. controlling account t. sales discount h. contra account u. sales return i. credit card v. sales slip j. credit me
On September 22, Illuminations Lighting Center sold $6,400 in merchandise on account to Sunshine Builders, a charge customer

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