I. Answer each item below:

1. How does earning revenue differ between a service business and a merchandising business? 2. How does a merchandiser calculate net income? 3. What account is used to record the purchase of merchandise? 4. What account is used to record expensing the cost of merchandise when it has been sold? 5. If the buyer of merchandise agrees to pay shipping costs, how is the cost recorded? 6. If the seller of merchandise agrees to pay shipping costs, how is the cost recorded? 7. Why would the seller of merchandise offer a discount for early payment? 8. Payment terms are: 4/10, n/50. What does this mean? 9. If the buyer takes advantage of the discount offered, what will happen to the cost of his/her merchandise? 10. When would the contra revenue account Sales Returns & Allowances be used? 11. When would the contra revenue account Sales Discount be used? 12. How will the two contra revenue accounts (in #10 and #11) affect sales? 13. What kind of account is inventory? 14. How is the inventory account adjusted? 15. For each account below, indicate whether it is a permanent account or temporary account:

a. Cost of Goods Sold b. Sales Revenue c. Sales Discount d. Sales Returns & Allowances e. Inventory