Chapter 7 Terms

Question 1

Service Business

Answer 1

A business which sells services.

Question 2

Merchandising Business

Answer 2

A business which sells goods that it purchases.

Question 3

Manufacturing Business

Answer 3

A business which sells goods that it produces.

Question 4

Subsidiary Ledger

Answer 4

A subsidiary ledger is a ledger that contains accounts of a single type, such as customers or vendors.

Question 5

Retail Business

Answer 5

A business which sells goods and services directly to individual customers.

Question 6

Periodic Inventory System

Answer 6

In a periodic inventory system, the cost of inventory on hand must be determined by counting merchandise inventory in stock.

Question 7

Perpetual Inventory System

Answer 7

In a perpetual inventory system, the amount of inventory on hand is adjusted for each sale, purchase, or return.

Question 8

Merchandise Inventory

Answer 8

The stock of goods kept on hand.

Question 9

Contra Revenue Account

Answer 9

An account with a debit balance, which is contrary to the normal balance for a Revenue Account.

Question 10

Control Account

Answer 10

An account that links a subsidiary ledger and the general ledger since its balance summarizes the balances of the accounts in the subsidiary ledger.

Question 11

Credit Memorandum

Answer 11

A note verifying that a customer’s account is being reduced by the amount of a Sales Return or Sales Allowance plus any sales tax that may have been involved.

Question 12

Credit Terms

Answer 12

Terms for payment on credit by buyer to seller.

Question 13

List Price

Answer 13

An established retail price.

Question 14

Net Sales

Answer 14

The difference between the balance in the Sales account and the balance in the Sales Returns and Allowances account and the Sales Discount account.

Question 15

Open Account Credit

Answer 15

A system that allows the sale of services or goods with the understanding that payment will be made at a later date.

Question 16

Sales Allowance

Answer 16

A reduction in the price originally charged to customers for goods or services.

Question 17

Sales Discounts

Answer 17

A Contra Revenue account where early payment discounts are recorded.

Question 18

Sales Return

Answer 18

A firm’s acceptance of a return of goods from a customer.

Question 19

Sales Returns and Allowances

Answer 19

A Contra Revenue account where sales returns and sales allowances are recorded.

Question 20

Schedule of Accounts Receivable

Answer 20

A listing of all balances of the accounts in the Accounts Receivable subsidiary ledger.

Question 21

Trade Discount

Answer 21

A reduction from list price.

Question 22

Wholesale Business

Answer 22

A business that manufactures goods for or distributes goods to retail businesses or large consumers such as hotels and hospitals.

Question 23

Accounts Receivable Ledger

Answer 23

A subsidiary ledger that contains credit customer accounts.