Name __________________________

True or False. Write True if the statement is true, and False if the statement is false in the space before each
number.

1. The operating cycle involves the purchase and sale of inventory as well as the subsequent payment for
purchases and collection of cash.
2. Merchandise inventory could include goods that are in transit.
3. An advantage of using the periodic inventory system is that it requires less recordkeeping than the perpetual
inventory system.
4. The periodic inventory system relies on a physical count of merchandise for its balance sheet amount.
5. Under the periodic inventory system, the cost of goods sold is treated as an account.
6. The periodic inventory system provides an up-to-date amount of inventory on hand.
7. Summing ending merchandise inventory and cost of goods sold gives the cost of goods available for sale.
8. A physical inventory is usually taken at the end of the accounting period.
9. Under the periodic inventory system, purchases of merchandise are not recorded in the Merchandise Inventory
account.
10. An entity would be more likely to know the amount of inventory on hand if it used the periodic inventory system
rather than the perpetual inventory system.
11. Taking a physical inventory refers to making a count of all merchandise on hand at a particular time.
12. When the periodic inventory system is used, a physical inventory should be taken at the end of the fiscal year. ·
13. The income statement of an entity that provides services only will not have the cost of goods sold.
14. For a merchandising entity, the difference between net sales and operating expenses is called gross margin.
15. Sales Returns and Allowances is described as a contra-revenue account.
16. On the income statement of a merchandising concern, profit is the amount by which net sales exceed operating
expenses.
17. Transportation Out is included in the cost of goods sold calculation.
18. Advertising Expense appears as a selling expense on the income statement.
19. Transportation In is considered a cost of merchandise purchased.
20. The difference between gross sales and net sales is equal to the sum of sales discounts, and sales returns and
allowances.
21. When the terms of sale include a sales discount, it usually is advisable for the buyer to pay within the discount
period.
22. The terms 2/10, n/30 mean that a 2% discount is allowed on payments made over 10 but before 30 days after the
invoice date.
23. Terms of 2/10, n/30 is an example of a trade discount.
24. Goods should be recorded at their list price less any trade discounts involved.
25. FOB shipping point means that the seller incurs the shipping costs.
26. Under the perpetual inventory system, the cost of merchandise is debited to Merchandise Inventory at the time of
purchase.
27. The calculation of the cost of goods available for sale during the year is not affected by the previous year's ending
inventory.
28. The change in inventory level from the beginning to the end of the year affects the cost of goods sold.
29. Transportation In is treated as a deduction in the cost of goods sold section 'of the income statement.
30. Under the periodic inventory system, the Purchases account is used to accumulate all purchases of merchandise
for resale