Financial Accounting- Tools for Business Decision Making - Chapter 5 Exam Questions Answered
Correctly (Graded A+)
Comprehensive income - Answers An income measure that includes gains and losses that are excluded
from the determination of net income.
Comprehensive income statement - Answers A statement that presents items that are not included in
the determination of net income, referred to as other comprehensive income.
Contra revenue account - Answers An account that is offset against a revenue account on the income
statement.
Cost of goods sold - Answers The total cost of merchandise sold during the period.
Gross profit - Answers The excess of net sales over the cost of goods sold.
Gross profit rate - Answers Gross profit expressed as a percentage by dividing the amount of gross profit
by net sales.
Net sales - Answers Sales less sales returns and allowances and sales discounts.
Periodic inventory system - Answers An inventory system in which a company does not maintain
detailed records of goods on hand throughout the period and determines the cost of goods sold only at
the end of the accounting period.
Perpetual inventory system - Answers A detailed inventory system in which a company maintains the
cost of each inventory item, and the records continuously show the inventory that should be on hand.
Profit margin - Answers Measures the percentage of each dollar of sales that results in net income,
computed by dividing net income by net sales.
Purchase allowance - Answers A deduction made to the selling price of merchandise, granted by the
seller, so that the buyer will keep the merchandise.
Purchase discount - Answers A cash discount claimed by a buyer for prompt payment of a balance due.
Purchase invoice - Answers A document that provides support for each purchase.
Purchase return - Answers A return of goods from the buyer to the seller for cash or credit.
Quality of earnings ratio - Answers A measure used to indicate the extent to which a company's earnings
provide a full and transparent depiction of its performance; computed as net cash provided by operating
activities divided by net income.
Sales discount - Answers A reduction given by a seller for prompt payment of a credit sale.
Sales invoice - Answers A document that provides support for each sale.
Correctly (Graded A+)
Comprehensive income - Answers An income measure that includes gains and losses that are excluded
from the determination of net income.
Comprehensive income statement - Answers A statement that presents items that are not included in
the determination of net income, referred to as other comprehensive income.
Contra revenue account - Answers An account that is offset against a revenue account on the income
statement.
Cost of goods sold - Answers The total cost of merchandise sold during the period.
Gross profit - Answers The excess of net sales over the cost of goods sold.
Gross profit rate - Answers Gross profit expressed as a percentage by dividing the amount of gross profit
by net sales.
Net sales - Answers Sales less sales returns and allowances and sales discounts.
Periodic inventory system - Answers An inventory system in which a company does not maintain
detailed records of goods on hand throughout the period and determines the cost of goods sold only at
the end of the accounting period.
Perpetual inventory system - Answers A detailed inventory system in which a company maintains the
cost of each inventory item, and the records continuously show the inventory that should be on hand.
Profit margin - Answers Measures the percentage of each dollar of sales that results in net income,
computed by dividing net income by net sales.
Purchase allowance - Answers A deduction made to the selling price of merchandise, granted by the
seller, so that the buyer will keep the merchandise.
Purchase discount - Answers A cash discount claimed by a buyer for prompt payment of a balance due.
Purchase invoice - Answers A document that provides support for each purchase.
Purchase return - Answers A return of goods from the buyer to the seller for cash or credit.
Quality of earnings ratio - Answers A measure used to indicate the extent to which a company's earnings
provide a full and transparent depiction of its performance; computed as net cash provided by operating
activities divided by net income.
Sales discount - Answers A reduction given by a seller for prompt payment of a credit sale.
Sales invoice - Answers A document that provides support for each sale.
