6.1 Learning Objective 6-1
1) Cost of Goods Sold is an operating expense on the income statement.
2) Inventory is reported on the balance sheet at the selling price of the item.
3) Service entities report Cost of Goods Sold on the income statement.
4) A company will include goods out on consignment in their ending inventory.
5) To document approval of returns of inventory, a purchasing company will issue a credit memorandum.
6) In a perpetual inventory system, a business maintains a continuous record of the number of units purchased, sold and on hand for each inventory item.
7) Since a perpetual inventory system continuously updates the inventory account, a physical inventory count is not necessary to prove the inventory records.
8) A purchase discount decreases the cost of the inventory.
9) The financial statements of a merchandising company will show:
A) the same accounts as the financial statements of a service company.
B) gross profit after operating income on the income statement.
C) inventory as a current asset on the balance sheet.
D) cost of goods sold as an operating expense on the income statement.
10) The cost of the inventory that a business has sold to customers is called:
A) inventory.
B) cost of goods sold.
C) purchases.
D) gross profit.