LET’S CHECK

Activity 27. Understanding the terms and concepts is your first step in recording transactions involving
merchandising or trading concern type of business. On the space provided you are required to write the
correct term as described.

1. PURCHASES is an account title used to accumulate the goods that are intended for sales during the
period under the periodic inventory system.

2. Under periodic inventory system, MERCHANDISE INVENTORY account remain unchanged.

3. Transportation in or freight in is normally RECORDED to the cost of goods sold.

4. Net Sales less cost of goods sold equals GROSS PROFIT.

5. BILL OF LADING is a document prepared by the carrier detailing the terms of delivery.

6. PURCHASE DISCOUNT incentive offered to customer/buyer to encourage early payment of goods

bought on credit.

7. The term “2/10, n/30” means that the buyer may deduct 2% from the invoice price if payment is
made within 10 days from the DATE OF PURCHASE.

8. The term freight prepaid or collect will dictate who SHOULDERS the transportation cost.

9. Under this transportation arrangement the seller is responsible for the transportation costs, this is
called FREIGHT OUT or TRANSPORTATION OUT or DELIVERY EXPENSE.

10. When goods in transit are included in the inventory this must be shipped under FOB DESTINATION
transportation arrangement.

11. This is a document made by the buyer authorizing the seller to deliver the goods as stated in the
form. PURCHASE ORDER (PO)

12. This document is prepared by the seller of goods and sent to the buyer to document items sold is
called SALES INVOICE.

13. Under this inventory system, both the sales amount and the cost of goods sold amount are recorded
every time the items are sold. This is PERPETUAL INVENTORY SYSTEM.

14. This is a shipping term where the buyer shoulder the shipping costs. FREIGHT IN or
TRANSPORTATION IN.

15. This type of transportation arrangement whereby ownership of goods passes to the buyer only when
the buyer receives the merchandise. FOB SHIPPING POINT.

16. OFFICIAL RECEIPT is the document evidences the receipt of cash by the seller.

17. This a document containing details of the goods received from a vendor is called RECEIVING REPORT.

18. These are expenses incurred in relation to the distribution of the product. DISTRIBUTION COST.

19. An account title use to record the revenue of a trading concern. SALES.
20. It is a discount that encourages the customer to buy more because of big discounts from the list
price. TRADE DISCOUNT.

21. Periodic inventory system are commonly used by businesses who sell MERCHANDISE
PRODUCTS/GOODS.

22. Purchase returns and Allowance is deduction of PURCHASES account.

23. PERIODIC Inventory system that provide an up-to-date amount of inventory on hand.

24. DISTRIBUTION COST is a transportation costs that is part of the operating expenses.

25. Accounting treatment for an FOB destination, freight collect arrangement is THE RECEIVER OF
GOODS (THE BUYER) PAYS THE FREIGHT CHARGES UPON DELIVERY OF THE GOODS. THE BUYER DOES
NOT TAKE OWNERSHIP OR LIABILITY FOR THE GOODS UNTIL THE CARGO GETS TO THE BUYER’S
PREMISES.