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Exam 2 ACG 2021 Study Questions and Correct Answers
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  • Course
  • ACG 2021
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  • ACG 2021

Cost of Goods Sold First on the income statement (Sales Revenue - Cost of Goods Sold = Gross Profit) Beginning Inventory + Purchases - Ending Inventory Advantages to Perpetual Inventory System Very detailed records of the cost of each item in inventory purchase and sale. Continuously shows invento...

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  • August 11, 2024
  • 4
  • 2024/2025
  • Exam (elaborations)
  • Questions & answers

Subjects

  • exam 2 acg 2021 study questions and correct answer
  • cost of goods sold first on the income statement
  • advantages to perpetual inventory system very det

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  • ACG 2021
  • ACG 2021

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Exam 2 ACG 2021 Study Questions and
Correct Answers
Cost of Goods Sold ✅First on the income statement (Sales Revenue - Cost of Goods
Sold = Gross Profit)
Beginning Inventory + Purchases - Ending Inventory

Advantages to Perpetual Inventory System ✅Very detailed records of the cost of each
item in inventory purchase and sale.
Continuously shows inventory that should be on hand at any time.
Better control over the inventories than a periodic system.
Company knows/determines the cost of goods sold each time a sale occurs.

Calculation of Cost of Goods Sold ✅Beginning Inventory
Add: Purchases, net Goods available for sale
Less/Subtract: Ending inventory cost
Equals the Cost of Goods Sold

Freight Costs Incurred by Seller (Freight Out) ✅Considered to be an operating
expense

Freight Costs Incurred by Buyer (Freight In) ✅Considered part of the cost of the
purchasing of inventory

Purchase Return ✅Returned goods in exchange for credit if the sale was credit or
refund if transaction was made with cash purchase.

Purchase Allowance ✅Buyer may choose to keep the merchandise if the seller allows
for a price discount/reduction of the original purchase price.

Sales Discounts ✅Contra revenue account

Purchase Discounts ✅Credit terms that can possibly limit a buyer's ability to claim a
cash discount for immediate and/or a prompt payment

Advantages of Purchase Discounts Include: ✅The purchaser saves money,
the seller shortens operating cycle by converting accounts receivable to cash faster and
earlier

Closing Entries ✅This is when net income and dividends are put into retained earnings
so that the balance of retained earnings agrees with the retained earnings statement.

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