TRUE OR FALSE

1. A debit memorandum represents an authorization to enter purchase

discounts in the accounting records. FALSE
2. Sales invoices relate to cash sales only, and credit memoranda relate to
credit sales only. FALSE
3. A purchase return is documented by the buyer’s preparation of a credit
memorandum. FALSE
4. Sales discount is another term for trade discount. FALSE
5. The proper time to recognize revenue is when title to the merchandise
changes hands. TRUE
6. The recording of a credit memorandum involves a debit to the sales returns
and allowances account. TRUE
7. The invoice price is equal to list price minus trade discounts. TRUE
8. The purchase discounts account is used under the net method of accounting
for purchases. FALSE
9. Prepaid freight is credited to accounts payable by the buyer when
merchandise is purchased on account, FOB shipping point. TRUE
10. Under the periodic inventory system, an ending inventory count must be
taken in order to determine the cost of goods sold. TRUE
11. As a general rule, goods in transit to a buyer at the end of the year belongs to
the seller. TRUE
12. A purchase return is documented by the buyer’s preparation of a credit
memorandum. FALSE
13. The purchase discounts lost account appears on the income statement as an
expense. TRUE
14. Physical possession is not required for legal title to inventory. TRUE
15. A cash discount has no account of its own and requires no special
accounting entry. FALSE
16. The use of the perpetual inventory system generally results in improved
inventory control. TRUE
17. Inventory is typically listed immediately before accounts receivable on the
statement of financial position. TRUE
18. The periodic inventory system does not utilize a purchases account. FALSE
19. Net Sales is equal to cash sales plus credit sales. FALSE
20. The sales account is used for the sales of all assets. FALSE

Reference:
Beticon L.B., Hinayon M.J., Ireneo S.C., Fundamentals of Accounting IFRS Based 2017 Edition
MULTIPLE CHOICE

1. Which of the following pairs includes items that are the most similar?

A. purchase discounts and purchase returns and allowances.

B. cost of goods sold and inventory
C. net sales and sales discounts
D. sales return and sales allowances
ANS: A
2. In a merchandising operation, the Sales account should include

A. only credit sales of merchandise

B. only cash sales of merchandise
C. both cash and credit sales of merchandise
D. sales of both merchandise and other assets of the business.
ANS: C
3. DEF Co. had the following data for the period ended:
Cash sales P400,000
Credit sales 280,000
Sales discounts 25,000
Sales return 20,000
Freight-in 15,000
Freight-out 16,000

DEF Company would report net sale revenue on its statement of

comprehensive income amounting to:

A. P635,000. C. P620,000.
B. P653,000. D. P680,000.
Ans.: A
4. If a seller of merchandise accepts goods returned by a credit customer, the
seller will typically issue:

A. a credit memorandum C. an invoice

B. a debit memorandum D. a purchase order
Ans.: A

Reference:
Beticon L.B., Hinayon M.J., Ireneo S.C., Fundamentals of Accounting IFRS Based 2017 Edition
5. ABC Co. returned P11,200 of merchandise (inclusive of the 12% VAT)that
was originally purchased on account. The company has not paid the goods
and was not entitled to a discount. ABC Co. uses a periodic inventory
system. What journal entry is needed to reflect the return of the merchandise?

A. Accounts payable 10,000

Purchase returns & allowances 10,000
B. Accounts payable 11,000
Purchase returns & allowances 11,000
C. Accounts payable 11,200
Purchase returns & allowances 10,000
Input Tax 1,200
D. Accounts payable 10,000
Input Tax 1,000
Purchase returns & allowances 11,000
Ans.: C
6. Which of the following companies would be likely to use perpetual system?

A. Drugstore. C. Hardware store.

B. Car dealer. D. School and supplies store.
Ans: B
7. When a debit memorandum is issued, an entry is made to

A. debit cash and credit accounts payable

B. debit sales and credit accounts receivable
C. debit accounts payable and credits to purchase returns and
allowances and input tax.
D. debit sales return and credit accounts receivable
Ans.: C
8. FOB shipping point means:

A. title passes at shipping point; seller pays transportation cost

B. title passes at shipping point, buyer pays transportation cost
C. title does not pass at shipping point, however, buyer is responsible
for the transportation cost
D. none of the answers.
Ans.: B
9. Under the perpetual inventory method, when a firm purchases goods on
credit, the journal entry will include a debit to

A. Purchases C. Cash
B. Income summary D. Inventory
Ans.: D

Reference:
Beticon L.B., Hinayon M.J., Ireneo S.C., Fundamentals of Accounting IFRS Based 2017 Edition
10. A seller would request payments from a purchases of merchandise through
the use of

A. An invoice. C. A purchase order.

B. A quantity discount. D. A purchase discount.
Ans.: A
11. For a merchandise entity, the purchases account includes:

A. all items acquired for both short term and long term use
B. acquisition of items for resale
C. acquisition of short term asset
D. acquisition of supplies
Ans.: B
12. Which of the following discounts has no account of its own and requires no
special accounting entry?
A. cash discount C. sales discount
B. trade discount D. purchase discount
Ans.: B
13. If a customer returns goods to a merchandiser, what effect, will the return
have on the books of the merchandiser?

A. a decrease in sales account

B. a decrease in the accounts payable and allowance accounts
C. an increase in the purchase return and allowance account
D. an increase in the sales returns and allowances account.
Ans.: D
14. Which of the following is not a contra account?

A. Sales discounts.
B. Accumulated depreciation.
C. Purchase returns and allowances
D. Freight In
Ans.: D
15. A purchase discount results from
A. returning goods to the seller
B. receiving a purchase allowance from the seller
C. buying a large enough quantity of merchandise to get the discount
D. paying within the discount period
Ans. D

Reference:
Beticon L.B., Hinayon M.J., Ireneo S.C., Fundamentals of Accounting IFRS Based 2017 Edition
16. On January 1, 2012, MJH Co. recorded P56,000 of merchandise purchase by
using periodic system. The purchase account were made on account, subject
to credit terms of 2/10,n/30. What journal entry should record if the
merchandise was paid on Jan. 15?
AnAns.:s.: A
A. Purchases 50,000
Cash 50,000
B. Accounts Payable 56,000
Cash 56,000
C. Accounts Payable 50,000
Input Tax 6,000
Cash 56,000
D. Accounts Payable 50,000
Cash 50,000
Ans.: B
17. Which of the following statement is false?

A. Cash discounts are a convenient means of reducing prices to

invoice prices.
B. Cash discounts are used to encourage customers to make prompt
discount payments.
C. From the seller’s perspective, the terms “cash discount” and “sales
discount” are synonymous.
D. Cash discounts may be offered in conjunction with trade discounts.
Ans. A
18. The expression 3/20,n/60 means:

A. The invoice must be paid in 3 to 20 days, otherwise, interest for 60

days will be charged.
B. A 3% discount is available if the invoice is paid in 20 to 60 days;
otherwise the total invoice price is due.
C. A 3% discount is available if the invoice is paid within 20 days,
otherwise, the total invoice price is due in 60 days.
D. A 15% (3/4 of 20) is available if the invoice is paid within 60 days.
Ans.: C
19. Revenue is normally entered in the accounting records when:

A. a customer orders goods

B. goods are received
C. a customer pays for the goods
D. goods are sold
Ans.: D

Reference:
Beticon L.B., Hinayon M.J., Ireneo S.C., Fundamentals of Accounting IFRS Based 2017 Edition
20. Sales return and allowances is commonly referred to as:

A. an expense account C. a contra revenue account

B. a revenue account D. a cost of goods sold account
Ans.: C

21. XYZ company sold P22,400 of merchandise on account to a customer on

January 16, 2012 terms 2/10,n/30. If the customer paid for the goods on
January 21, what journal entry would be made?
If VAT is not considered:
Dr: Cash, 21,952
A. Cash 21,952 Dr: Sales Disc., 448
Accounts receivable 21,952 Cr.: A/R, 22,400
B. Cash 19,600
If VAT is considered:
Accounts receivable 19,600 Dr.: Cash, 22,000
C. Cash 21,952 Dr.: Sales Disc. 400
Sales discount 400 Cr.: A/R, 22,400
Output tax 48 Note: Per BIR Regulations,
Accounts receivable 22,400 VAT will not be adjusted
as a result of cash discount.
D. Cash 19,600
Sales Discount 400
Accounts receivable 20,000
Ans.: Not given.
22. Which of the following statement is false?

A. The difference between list price and invoice price is equal to the
amount of the trade discount.
B. Trade discounts are a convenient means of reducing list price to
invoice price.
C. Trade discounts are not entered in the accounting records,
D. Trade discounts are identical to cash discounts.
Ans.: D
23. Revenue from the sale of merchandise should be entered in the accounting
records at:

A. The list price,

B. The invoice price minus any cash discount
C. The list price minus any trade discount
D. The invoice price minus any trade discount and any cash discount.
Ans.:C

Reference:
Beticon L.B., Hinayon M.J., Ireneo S.C., Fundamentals of Accounting IFRS Based 2017 Edition
24. IRH Co. recorded the sale at P6,000. If the sale was subject to a 20% trade
discount and credit terms of 5/10,n/60, the list price was?(Exclude VAT)
A. P4,500 C. P4,800
B. P7,500 D. P7,700
Ans.: B
25. What sales price should be recorded when an item having a P90,000 list price
is sold with 15% trade discount? The sales invoice includes the terms
2/10,n/30. (Exclude VAT)
A. P74,700 C. P78,300
B. P76,500 D. P 80,000
Ans.: B

Place of Place of Invoice Sales Credit Cash

Buyer seller date Amount returns terms Date Received
2/10, Paid
Davao Manila 1/1 P44,800 P16,800 1/11 P27,440
n/30
Cebu Manila 2/2 336,000 56,000 n/45 2/281/11 P280,000
3/10,
Batangas Cebu 3/3 280,000 -- 3/132/28 P271,600
n/60
--------
3/13

Required: Compute the amount received by the seller.

Invoice Freight Amount of Amount

Price Cost Terms returns Paid
P168,000 P2,000 FOB shipping point, prepaid P4,480 P165,520
212,800 5,000 FOB shipping point 1/10,n/30 5,600 P205,128
201,600 6,000 FOB Destination, collect 2,240 P193,360
184,800 2,500 FOB Destination 2/10,n/30 P1,120 P180,006.40

REQUIRED: Determine the amount to be paid in full settlement of each of the

invoices listed above, assuming that credit for returns and allowances was
received prior to payment, and that all invoices were paid within the discount
period.

List Trade Date Selling/ Cash

Invoice Price discounts Credit Terms Paid Invoice Collected
Date Price
Oct. 16 P140,000 50%;20% 2/10 EOM Nov. 2 P56,000 P54,880
Sept. 2 110,000 30%;20% 2/10, n/30 Sept. 9 P61,600 P60,368
July 7 240,000 20%;10%;5% 2/10,1/15,n/30 July 18 P164,160 P162,518.40
April 16 300,000 40%;20% 2/10,n/30 April 22 P144,600 P141,120
April 27 100,000 30%,15%,5% 2/10,1/15,n/30 May 10 P56,525 P55,959.75
Required: Compute for the selling price and cash collected.

Reference:
Beticon L.B., Hinayon M.J., Ireneo S.C., Fundamentals of Accounting IFRS Based 2017 Edition