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Importance Of Profits For Company’s Business A company (corporation) needs to earn profits in order to run the business, to grow it and to stabilize it. Running a business in loss will surely close it one day. That is why, the company started the business to earn profits during the accounting period. The correct option of this multiple choice question (mcq) is (C) as proved below: We are given the following: Gross Sales = $800,000 Cost of Goods Sold = $490,000 We are required to calculate gross profit rate. Here we need to calculate the value of net sales, so we have the following: Net Sales = Gross Sales - Sales Returns and Allowances - Sales Discounts Both sales returns and allowances and sales discounts are contra revenue account, so these are deducted from gross sales to calculate net sales for the current accounting period. Net Sales = $800,000 - $75,000 - $25,000 = $800,000 - $100,000 = $700,000 Amount of Gross Profit = Net Sales - Cost of Goods Sold = $700,000 - $490,000 = ...

The correct option of this multiple choice question (mcq) is (D), as when the company, whether a manufacturing / producing or a merchandiser / trading, sold goods to customers on credit, the accountant debits accounts receivable account and credit sales revenue account. Why Accounts Receivable Is Debited And Sales Revenue Is Credited? According to Rules of Debits and Credits, when assets accounts increase, we debit these accounts and when these accounts decrease, we credit these accounts. Here accounts receivable is a current asset and it is increasing as the business is entitled to receive the amount of goods sold to customers on account who promises to pay to the company within specified time. So, increase in accounts receivable is debited in this transaction. On the other hand, sales is a revenue account which is credited when increases according to the rules of debits and credits. In this business transaction, sales revenue account is increasing as the company is selling the g...

1. The correct option of this multiple choice question (mcq) is (a), as under perpetual inventory system, the merchandise or goods purchased or acquired for resale is recorded under inventory account. There is no need to open separate purchases account to record purchase of merchandise on account / credit unlike periodic inventory system. The double entries to record are shown below: (a) Merchandise Acquired On Account Inventory a/c XXX                   Accounts Payable a/c XXX (Merchandise Purchased On Account) (b) Merchandise Acquired For Cash For Resale Purpose Inventory a/c XXX                   Cash a/c XXX (Merchandise Purchased For Cash) All other options are incorrect choices here. 2. The correct option is (c), as under perpetual inventory system, when the selling company sold goods to customers on accou...

The statement is “True”, as under Perpetual Inventory System (PIS), Inventory Account (IA) is constantly updated on every sales made, purchases made or the occurrence of sales returns & allowances, sales discounts, purchases returns & allowances and purchases discounts but the physical count of Inventory (I) is not made. So, errors or mistakes in recording I, theft and wastage of merchandise or goods on hand are not taken into account unlike periodic inventory system, So, the balance of I on hand is different with the actual balance of I on hand. That is why, under PIS, the inventory control management makes physical count of merchandise on hand at the end of period. Due to the difference between merchandise on hand and actual balance of merchandise on hand by taking the physical count, there is a need to make adjustment for such unadjusted balance in IA. The adjustment affects inventory and cost of goods sold. If the unadjusted amount in I is greater than the actual amo...

The correct option of this multiple choice question (mcq) is (c) as list price is the price at which merchandise or goods can be sold to retailers if no discount, such as trade discount, is given. If the trade discount is given, then it is deducted from the list price which becomes selling price for Jay Co (seller’s business), which decrease its profit margin in selling goods, and purchase price for buyer’s business. The journal entries of this business transaction can be recorded under perpetual inventory system and periodic inventory system as shown below: Under Perpetual Inventory System Accounts Receivable a/c $6,000                                      Sales a/c $6,000 (Sold Merchandise For $6000 On Account / Credit) Cos of Goods Sold a/c $3,200          ...

Here, we need to record journal entries date-wise for Adams Company (Selling Company) using the gross method under perpetual inventory system in which accounts receivable and sales are recorded at gross amount (full amount) and not at net amount. April 9 Accounts Receivable a/c $10,000                                        Sales a/c $10,000 (Sold Merchandise To Evans Company) Cost of Goods Sold a/c $6,000                                 Inventory a/c $6,000 (To Update Inventory Due To Sales Made On Account Which Reduces Its Balance) April 15 Sales Return & Allowance a/c $1,200           ...

If the company or entity did not recorded purchases, then it understated the purchases account in the Income Statement. The ending inventory account is also understated in income statement and on the balance sheet as well. Due to non-recording of certain purchases, accounts payable account is also understated. However, there are no effects on cost of goods sold and net income for the period as both the purchases and ending inventory accounts are understated with the equal amount, so the effect of error on the debit side (purchases is less debited with equal amount) offsets or cancels the effect of error on the credit side (ending inventory is less credited with equal amount) in the calculation of cost of goods sold. As, there is no effect on cost of goods sold, so there is also no effect on net income as the error is not carried out its effect on net income due to offsetting or cancellation. There is also no effect on Retained Earnings as there is no effect on net income and hence...