If two parties agree on the shipment as FOB shipping point, transportation is the buyer’s responsibility. It is also called “Freight-in”, because freight cost is included in the cost of purchased goods.

If the merchandise inventory is sold, its cost is taken from inventory account in balance sheet and recognized as an expense (cost of goods sold) in the income statement.

Accounts Receivable Turnover Ratio measures the liquidity of accounts receivable and is calculated as net credit sales divided by net accounts receivable.

Maker is the writer of a note, promises to pay.Payee is the receiver of a note, to get the payment

Merchandising companies do not make production. They only purchase goods and resell to either consumers or retailers. Therefore, a coffee import company is a merchandising company. 

The consistency principle holds that companies should use the same accounting methods and procedures in each accounting period, so that the information provided will help investors and creditors to compare a company’s financial statements from one period to the next.

To evaluate a company’s ability to analyze its account receivables, accounts receivable turnover ratio is used. This accounting ratio is calculated by simply dividing Net credit sales by Average Accounts Receivable for the duration during which the sales were made by the company. Not only the turnover but also receivable levels are also assessed based on how long it takes to collect the receivable. This can be taken as an alternative to the accounts receivable turnover ratio with more direct interpretation. The ratio called days to collect account receivable is calculated by dividing total or 365 days by accounts receivable turnover.

The correct answer to question is option A. The expression given in this case belongs to the  periodic inventory system. 

Revenue is the gross increase in owner’s equity from delivering goods or services to customers and clients.

Inventories are assets;

I. Held for sale in the ordinary course of business;

II. Use in the process of production for such sale

III. In the form of materials or supplies to be consumed in the production process or in
the rendering of the services. The correct choice is E.

Return facility is often part of a company’s marketing program that enables it to maintain competitiveness. It is basically a contra sales account that records (1) any goods returned by the customers and (2) any allowance given to a customer because the company delivered defective or improper goods. As a result, this will reduce the company’s account receivable.Sales returns and allowances reduce the amount of accounts receivables since the customer delivers back the goods or the company waives a portion of its claim due to product defects.

As can be seen, account receivables account is debited when a company sells goods or services on credit; sales revenue account is credited. The correct answer is D.

A manufacturing company produces goods and usually sells them to merchandising firms. Although the products they produce may differ, manufacturers normally have three inventory accounts in their financial statements: raw materials, work in process, and finished goods.
Raw Materials Inventory reports the cost of goods and
materials on hand which will be used in production.
Work in Process Inventory reports the cost of goods, materials and other components of manufacturing process used for the inventory which are still in production process, in other words unfinished at the time financial statements are prepared.
Finished Goods Inventory reports the cost of goods, materials and other components of manufacturing process used for the inventory produced and available for sale. A is the right answer

Consistency Principle states that businesses should use the same accounting methods and procedures from period to period. From the inventories point of view, companies have to use the same accounting system (periodic or perpetual inventory system) and the same inventory cost flow system (specific identification, weighted average cost, FIFO or LIFO) within the accounting periods to provide comparability of their financial statements.

In periodic inventory system, companies use “Purchase” account to record their purchases of inventories and there is no record for Cost of Goods Sold (COGS) until the end of accounting period

Sales returns and allowances reduce the amount of accounts receivables since the customer delivers back the goods or the company waives a portion of its claim due to product defects. The correct answer is A.

Operating cycle begins with the purchase of
merchandise inventory and ends when the
cash from sales is collected from customers.

Fraud Triangle has three components: pressure, opportunity, and rationalization. These components refer to some factors that allow committing both types of fraud.

Control Environment: It defines a set of standards, processes, and structures that provide a basis to carry control consciousness across the businesses. So, it serves as a basis or an umbrella for all other components of internal control.

Preparing adjusted trial balance follows adjusting entries