ACCT 201 Exam 2 Questions and Answers Fully Solved
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
FOB destination - Answers freight terms indicating that the seller places the goods free on board to the
buyer's place of business, and the seller pays the freight
FOB shipping point - Answers freight terms indicating that the seller places goods free on board the
carrier, and the buyer pays the freight costs
gross profit - Answers the excess 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
( gross profit / net sales = GPR )
income from operations - Answers income from a company's principal operating activity; determined by
subtracting cost of goods sold and operating expenses from net sales
multiple-step income statement - Answers an income statement that shows several steps in determining
net income
net sales - Answers sales revenue less sales returns and allowances and less sales discounts
nonoperating activities - Answers various revenues, expenses, gains, and losses that are unrelated to a
company's main line of operations
operating expenses - Answers expenses incurred in the process of earning sales revenue
other expenses and losses - Answers a nonoperating-activities section of the income statement that
shows expenses and losses unrelated to the company's main line of operations
other revenue and gains - Answers a nonoperating-activities section of the income statement that shows
revenues and gains unrelated to the company's main line of operations
periodic inventory system - Answers an inventory system under which the company does not keep
detailed inventory records throughout the accounting period but determines the cost of goods sold only
at the end of an accounting period
perpetual inventory system - Answers an inventory system under which the company keeps detailed
records of the cost of each inventory purchase and sale, and the records continuously show the
inventory that should be on hand
, 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 supports each credit purchase
purchase return - Answers a return of goods from the buyer to the seller for a cash or credit refund
sales discount - Answers a reduction given by a seller for prompt payment of a credit sale
sales invoice - Answers a document that supports each credit sale
sales returns and allowances - Answers purchase returns and allowances from the seller's perspective
sales revenue (sales) - Answers the primary source of revenue in a merchandising company
single-step income statement - Answers an income statement that shows only one step in determining
net income
average-cost method - Answers inventory costing method that uses the weighted-average unit cost to
allocate to ending inventory and cost of goods sold the cost of goods available for sale
consigned goods - Answers goods held for sale by one party although ownership of the goods is retained
by another party
consistency concept - Answers dictates that a company use the same accounting principles and method
from year to year
current replacement cost - Answers the current cost to replace an inventory item
days in inventory - Answers measure of the average number of days inventory is held; calculated as 365
divided by inventory turnover
finished good inventory - Answers manufactured items that are completed and ready for sale
First-in, first-out (FIFO) method - Answers inventory costing method that assumes that the costs of the
earliest goods purchases are the first to be recognized as cost of goods sold
FOB (free on board) destination - Answers freight terms indicating that ownership of the goods remains
with eh seller until the goods reach the buyer
FOB (free on board) shipping point - Answers freight terms indicating that ownership of the goods
passes to the buyer when the public carrier accepts the goods from the seller
gross profit method - Answers a method for estimating the cost of the ending inventory by applying a
gross profit rate to the net sales and subtracting estimated cost of goods sold from cost of goods
available for sale
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
FOB destination - Answers freight terms indicating that the seller places the goods free on board to the
buyer's place of business, and the seller pays the freight
FOB shipping point - Answers freight terms indicating that the seller places goods free on board the
carrier, and the buyer pays the freight costs
gross profit - Answers the excess 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
( gross profit / net sales = GPR )
income from operations - Answers income from a company's principal operating activity; determined by
subtracting cost of goods sold and operating expenses from net sales
multiple-step income statement - Answers an income statement that shows several steps in determining
net income
net sales - Answers sales revenue less sales returns and allowances and less sales discounts
nonoperating activities - Answers various revenues, expenses, gains, and losses that are unrelated to a
company's main line of operations
operating expenses - Answers expenses incurred in the process of earning sales revenue
other expenses and losses - Answers a nonoperating-activities section of the income statement that
shows expenses and losses unrelated to the company's main line of operations
other revenue and gains - Answers a nonoperating-activities section of the income statement that shows
revenues and gains unrelated to the company's main line of operations
periodic inventory system - Answers an inventory system under which the company does not keep
detailed inventory records throughout the accounting period but determines the cost of goods sold only
at the end of an accounting period
perpetual inventory system - Answers an inventory system under which the company keeps detailed
records of the cost of each inventory purchase and sale, and the records continuously show the
inventory that should be on hand
, 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 supports each credit purchase
purchase return - Answers a return of goods from the buyer to the seller for a cash or credit refund
sales discount - Answers a reduction given by a seller for prompt payment of a credit sale
sales invoice - Answers a document that supports each credit sale
sales returns and allowances - Answers purchase returns and allowances from the seller's perspective
sales revenue (sales) - Answers the primary source of revenue in a merchandising company
single-step income statement - Answers an income statement that shows only one step in determining
net income
average-cost method - Answers inventory costing method that uses the weighted-average unit cost to
allocate to ending inventory and cost of goods sold the cost of goods available for sale
consigned goods - Answers goods held for sale by one party although ownership of the goods is retained
by another party
consistency concept - Answers dictates that a company use the same accounting principles and method
from year to year
current replacement cost - Answers the current cost to replace an inventory item
days in inventory - Answers measure of the average number of days inventory is held; calculated as 365
divided by inventory turnover
finished good inventory - Answers manufactured items that are completed and ready for sale
First-in, first-out (FIFO) method - Answers inventory costing method that assumes that the costs of the
earliest goods purchases are the first to be recognized as cost of goods sold
FOB (free on board) destination - Answers freight terms indicating that ownership of the goods remains
with eh seller until the goods reach the buyer
FOB (free on board) shipping point - Answers freight terms indicating that ownership of the goods
passes to the buyer when the public carrier accepts the goods from the seller
gross profit method - Answers a method for estimating the cost of the ending inventory by applying a
gross profit rate to the net sales and subtracting estimated cost of goods sold from cost of goods
available for sale
