Exam 2 (Chapters 5-8) Extra stuff

Question 1

How to calculate income statement (3 equations)

Answer 1

Sales revenue - sales return - sales discount = net sales

Net sales - cost of goods sold = gross profit

Gross profit - operating expense = net income

Question 2

How to calculate the cost of goods sold (2 equations)

Answer 2

Beginning inventory + purchases = cost of goods available for sales

Cost of goods available for sale - ending inventory = cost of goods sold

Question 3

How do you find ending inventory?

Answer 3

Physical count

Question 4

What happens if the ending inventory is understated?

Answer 4

Cost of goods sold is overstated

Question 5

What happens if ending inventory if overstated?

Answer 5

Then cost of goods sold is understated

Question 6

What happens if the cost of goods sold is understated?

Answer 6

Net income is overstated

Question 7

What are the 3 accounts we need to close?

Answer 7

Revenue, dividend, expenses

Question 8

Revenue +/- dividend +/- expenses = ?

Answer 8

Retained earnings

Question 9

Is sales return normally a debit/credit balance?

Answer 9

Debit

Question 10

If sales return is debited, what account is credited?

Answer 10

Retained earnings

Question 11

Are dividends usually a debit or credit balance?

Answer 11

Debit

Question 12

If a dividend is debited, what account is credited?

Answer 12

Retained earnings

Question 13

Does sales revenue usually have a debit or credit balance?

Answer 13

Debit

Question 14

If sales revenue is debited, which account is credited?

Answer 14

Retained earnings

Question 15

How to calculate net income?

Answer 15

Revenue - expenses

Question 16

Do we close the sales discount account?

Answer 16

Yes

Question 17

Do we close the cost of goods sold?

Answer 17

No

Question 18

Do we close the inventory?

Answer 18

No

Question 19

Does cost of goods sold usually have a debit or credit balance?

Answer 19

Credit

Question 20

If cost of goods sold is credited, which account is debited?

Answer 20

Retained earnings

Question 21

Which expense accounts are closed?

Answer 21

All of them

Question 22

Is prepaid insurance expense closed?

Answer 22

No, because it’s an asset, not an expense

Question 23

Is unearned revenue closed?

Answer 23

No, it’s a libaility

Question 24

Define deposit in transit.

Answer 24

You sent the bank the money but they haven’t received it yet

Question 25

Is accounts receivable an asset, liability, or expense account?

Answer 25

Asset

Question 26

What kind of asset is accounts receivable?

Answer 26

contra-asset

Question 27

Is the bad debt expense account closed?

Answer 27

Yes