Problem 2 - Accounting Terminology (8 pts) CHAPTER 4

Listed below are nine (9) technical accounting terms which mentioned in Chapter 4:

Gross profit Cost of Goods Sold Sales returns and allowances Periodic inventory system Physical inventory Selling expenses Perpetual inventory system Free On Board (FOB) Inventory shrinkage

The following eight (8) statements each describes one of these technical terms. One (1) of the technical terms above is not described by any of the following statements. In the space provided after each statement, indicate the accounting term described.

Please enter the terms in the boxes exactly as presented above. Watch your spelling and capitalization and do not abbreviate or it will be counted as wrong.

1. An approach to accounting for inventories and the Cost of Goods Sold used primarily in large businesses with computerized accounting systems.
2. An approach to accounting for inventories and the Cost of Goods Sold used primarily in small businesses with manual accounting systems.
3. A reason why perpetual inventory records may not agree to the physical inventory count.
4. The expense of buying and preparing merchandise for sale which is later transferred from the Inventory account in the period of the related sales.
5. A contra-revenue account, the balance of which represents an reduction to Gross Sales in arriving at Net sales.
6. An accounting procedure used in both perpetual and periodic inventory systems. In a perpetual system, this procedure is used as a check of the updated general ledger inventory balance. In a periodic system, it is the basis for computing the Cost of Goods Sold.
7. The difference between the Net Revenue earned by selling merchandise and the Cost of Goods Sold.
8. The point at which ownership of, and liability for, purchased items transfers from the seller to the buyer.