Retailing Accounting – Test Bank 11e

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Testbank

to accompany

Accounting

11^th edition

by

Hoggett et al.

© John Wiley & Sons Australia, Ltd 2020

Chapter 6: Accounting for retailing

Multiple-choice questions

1. A retailer buys and sells on 30 days CR and from the date of purchase it takes, on average, 14 days to sell inventory. What is the correct order for the steps in this retailer's operating cycle?
I Sell goods to customer
II Collect cash payment from customer
III Pay supplier
IV Purchase goods for resale from supplier

a. I, II, III, IV

b. I, IV, II, III

c. IV, I, III, II

d. IV, III, II, I

General Feedback:

Learning objective 6.1 describe the nature of inventory and retailing operations.

2. The main difference between a service and a retail business is that service businesses:

a. sell directly to consumers.

b. convert raw materials into finished goods.

c. sell services rather than goods.

d. buy and sell goods in bulk.

General Feedback:

Learning objective 6.1 describe the nature of inventory and retailing operations.

3. Inventory is reported on the statement of financial position as:

a. a current asset.

b. a liability.

c. a non-current asset.

d. property, plant and equipment.

General Feedback:

Learning objective 6.1 describe the nature of inventory and retailing operations.

4. Which statement relating to inventory is not correct?

a. It makes up a significant portion of a retailer's assets.

b. It is a very active asset, continually being acquired, sold and replaced.

c. Another name for inventory is stock-in-trade.

d. It is classified as a non-current asset in the statement of financial position.

General Feedback:

Learning objective 6.1 describe the nature of inventory and retailing operations.

5. Which of the following is usually a retailer's largest expense?

a. Selling expenses

b. Cost of sales

c. Administration expenses

d. Rent expenses

General Feedback:

Learning objective 6.1 describe the nature of inventory and retailing operations.

6. The refers to the average length of time it takes for a retail business to acquire inventory, sell it to its customers and collect the cash owing.

a. product cycle.

b. inventory turnover.

c. operating cycle.

d. accounting cycle.

General Feedback:

Learning objective 6.1 describe the nature of inventory and retailing operations.

7. Goods held for sale by a retailer in the normal course of business are known as:

a. inventory, stock, raw materials.

b. merchandise, inventory.

c. stock, inventory work-in-process.

d. stock, inventory, stock-in-trade.

General Feedback:

Learning objective 6.1 describe the nature of inventory and retailing operations.
Feedback: Stock, inventory and stock-in-trade are all terms for goods held for sale by a retailer in the normal course of business. Work-in-process and raw materials are held by a manufacturer not a retailer.

8. In the statement of financial performance expenses are classified into four categories, cost of sales, selling and distribution, administrative, and financial. Expenses incurred for storage costs and advertising are classified as:

a. Financial

b. Cost of sales

c. Administrative

d. Selling and distribution

General Feedback:

Learning objective 6.2: describe the basic format of a statement of financial performance for retail businesses.

9. A retailer's statement of financial performance set out in which of the following formats?

a. Sales revenue - cost of sales = gross profit - expenses = profit

b. Sales revenue - cost of sales - expenses = gross profit

c. Sales revenue - expenses = profit

d. Sales revenue - cost of sales = gross profit

General Feedback:

Learning objective 6.2: describe the basic format of a statement of financial performance for retail businesses.

10. If the invoice price for goods sold to a customer is $798, including GST, how much GST is to be collected from the customer?

a. $98.00

b. Nil

c. $79.80

d. $72.55

General Feedback:

Learning objective 6.2: describe the basic format of a statement of financial performance for retail businesses.
Feedback: $72.55 is to be collected from the customer = $798 / 11.

11. Which of the following should be classified as a selling and distribution expense in the statement of financial performance of a retailer?

a. Sales salaries and commissions

b. Cash discounts

c. Depreciation on office furniture and equipment

d. Bad Debts

General Feedback:

Learning objective 6.2: describe the basic format of a statement of financial performance for retail businesses.

12. Australia's GST (Goods and Services Tax) legislation requires a tax invoice to be issued for all sales (GST inclusive): greater than

a. $200.

b. $50.

c. $100.

d. $82.50

General Feedback:

Learning objective 6.3: account for sales transactions of retail businesses, including goods and services tax, the treatment of sales returns, cash discounts, trade discounts and freight costs.

13. GST collected on sales is accumulated in a liability account called GST payables and GST paid on purchases is accumulated in an account with a debit balance called GST receivables. What type of account is GST receivables?

a. Expense

b. Contra liability

c. Asset

d. Contra expense

General Feedback:

Learning objective 6.3: account for sales transactions of retail businesses, including goods and services tax, the treatment of sales returns, cash discounts, trade discounts and freight costs.

14. Which of the following is not required to appear on a tax invoice?

a. The signature of the person authorising the invoice

b. The words 'tax invoice'

c. The GST amount payable

d. The ABN of the issuing entity

General Feedback:

Learning objective 6.3: account for sales transactions of retail businesses, including goods and services tax, the treatment of sales returns, cash discounts, trade discounts and freight costs.

15. Cash (settlement) discounts are primarily issued to:

a. encourage customers to pay their account early.

b. encourage customers to pay for purchases in cash.

c. encourage customers to purchase goods on CR.

d. provide discounts to customers who purchase goods in bulk quantities.

General Feedback:

Learning objective 6.3: account for sales transactions of retail businesses, including goods and services tax, the treatment of sales returns, cash discounts, trade discounts and freight costs.

16. Bailey Ltd sold goods to Andrews Ltd for $1000. Andrews Ltd paid the account 28 days later. Ignoring GST, the correct entry in Bailey Ltd's books to record the payment by Andrews Ltd is:

a. DR Cash at bank $1000; CR Accounts receivable $1000

b. DR Cash at bank $1000; CR Sales $1000

c. DR Accounts receivable $1000; CR Sales $1000

d. DR Accounts receivable $1000; CR Equity $1000

General Feedback:

Learning objective 6.3: account for sales transactions of retail businesses, including goods and services tax, the treatment of sales returns, cash discounts, trade discounts and freight costs.

17. Offering a credit customer a discount after the sale has occurred is a way to:

a. put the customer in a good mood

b. avoid GST

c. encourage early payment of the amount owing

d. increase sales

General Feedback:

Learning objective 6.3: account for sales transactions of retail businesses, including goods and services tax, the treatment of sales returns, cash discounts, trade discounts and freight costs.

18. Simon sold goods to Lawrence for $2200 including GST. Lawrence paid his account within the discount period and received a settlement discount of 2%. Using the gross method, the correct entry to be recorded in Simon's books for the payment from Lawrence is:

a. DR Bank $2156; DR Discount allowed $40; DR GST payable $4; CR Accounts receivable $2200

b. DR Bank $2160; DR Discount allowed $40; CR Accounts receivable $2200

c. DR Bank $2156; DR Discount allowed $44; CR Accounts receivable $2200

d. DR Bank $2156, DR Discount allowed $44; DR GST payable $4; CR Accounts receivable $2204

General Feedback:

Learning objective 6.3: account for sales transactions of retail businesses, including goods and services tax, the treatment of sales returns, cash discounts, trade discounts and freight costs.

19. When goods are returned by a customer or the price is adjusted, Australia's GST legislation requires the retailer to issue the customer with _________________for all amounts totalling more than $50.

a. a negative tax invoice

b. a refund note

c. an invoice

d. an adjustment note

General Feedback:

Learning objective 6.3: account for sales transactions of retail businesses, including goods and services tax, the treatment of sales returns, cash discounts, trade discounts and freight costs.

20. GST is credited to the GST payable account when a sale occurs. If goods are returned or a discount allowed the _______________ account must be debited with an adjustment for GST.

a. Discount allowed

b. GST receivable

c. GST payable

d. Purchases

General Feedback:

Learning objective 6.3: account for sales transactions of retail businesses, including goods and services tax, the treatment of sales returns, cash discounts, trade discounts and freight costs.

21. A retailer will use which specific term for income?

a. service income.

b. fees income.

c. sales.

d. revenue.

General Feedback:

Learning objective 6.3: account for sales transactions of retail businesses, including goods and services tax, the treatment of sales returns, cash discounts, trade discounts and freight costs.

22. James Ltd sold goods to Cameron Ltd on credit for $2 500. Ignoring GST and Cost of Sales, the correct accounting entry to record this transaction in James Ltd's books is:

a. DR Sales $2500; CR Accounts receivable $2500

b. DR Bank $2500; CR Sales $2500

c. DR Sales $2500; CR Cost of sales $2500

d. DR Accounts receivable $2500; CR Sales $2500

General Feedback:

Learning objective 6.3: account for sales transactions of retail businesses, including goods and services tax, the treatment of sales returns, cash discounts, trade discounts and freight costs.

23. In relation to discount terms, what does 5/7, n/30 mean?

a. 50% discount if paid with 7 days, otherwise 30% discount.

b. Invoice due on 5th July or 30th November.

c. 5% discount to be deducted from the invoice price if payment is made within 7 days or the full amount is due within 30 days of the invoice date.

d. 50% discount, November 30th.

General Feedback:

Learning objective 6.3: account for sales transactions of retail businesses, including goods and services tax, the treatment of sales returns, cash discounts, trade discounts and freight costs.

24. When the seller pays freight outward the correct classification in the seller's statement of financial performance is a/an ____________ expense.

a. selling

b. financial

c. administrative

d. cost of sales

General Feedback:

Learning objective 6.3: account for sales transactions of retail businesses, including goods and services tax, the treatment of sales returns, cash discounts, trade discounts and freight costs.

25. Brian sold goods to Mike on credit for $1100 including GST. The correct accounting entry to record this transaction in Brian's books is:

a. DR Accounts receivable $1100; CR Sales $1000, CR GST payable $100

b. DR Accounts receivable $1000, DR GST payable $100; CR Sales $1100

c. DR Accounts receivable $1000, CR Sales $1000

d. DR Accounts receivable $1100, CR Sales $1100

General Feedback:

Learning objective 6.3: account for sales transactions of retail businesses, including goods and services tax, the treatment of sales returns, cash discounts, trade discounts and freight costs.

26. To obtain the maximum possible benefit from a cash discount of 2/10, n/30, the buyer should pay the invoice:

a. at the end of the month to receive a 7% discount.

b. on the last day of the discount period, i.e. in 10 days, to receive a 2% discount.

c. when the seller threatens legal action.

d. immediately.

General Feedback:

Learning objective 6.3: account for sales transactions of retail businesses, including goods and services tax, the treatment of sales returns, cash discounts, trade discounts and freight costs.

27. The account, Sales Returns and Allowances, is classified as what type of account?

a. Contra account to sales revenue

b. Contra account to Inventory

c. Expense

d. Liability

General Feedback:

Learning objective 6.3: account for sales transactions of retail businesses, including goods and services tax, the treatment of sales returns, cash discounts, trade discounts and freight costs.

28. Jane sold goods to Johnno for $4400 including GST. Johnno paid his account within the discount period and received a settlement discount of 5%. Using the gross method, which of the following is the correct entry in Jane's books to record Johnno's payment?

a. DR Cash $4180; DR Discount allowed $220; CR Accounts receivable $4400

b. DR Cash $4200; DR Discount allowed $200; CR Accounts receivable $4400

c. DR Cash $4180; DR Discount allowed $220; DR GST payable $20; CR Accounts receivable $4420

d. DR Cash $4180; DR Discount allowed $200; DR GST payable $20; CR Accounts receivable $4400

General Feedback:

Learning objective 6.3: account for sales transactions of retail businesses, including goods and services tax, the treatment of sales returns, cash discounts, trade discounts and freight costs.

29. The process of counting and pricing the entire inventory on hand on a particular date is known as:

a. invoicing.

b. merchandise pricing.

c. the periodic inventory system.

d. a stocktake.

General Feedback:

Learning objective 6.4: account for purchases of inventory and cost of sales under both the perpetual and periodic inventory systems by retail businesses.

30. Under the perpetual inventory system, three office desks were originally purchased on CR at $300 each plus 10% GST. If all three desks were sold to a customer at $550 each (including GST) what is the correct entry to record the cost of the sale?

a. DR Cost of sales $900; DR GST receivable $90; CR Inventory $990

b. DR Cost of sales $900; CR Sales $900

c. DR Cost of sales $1650; CR Sales $1650

d. DR Cost of sales $900; CR Inventory $900

General Feedback:

Learning objective 6.4: account for purchases of inventory and cost of sales under both the perpetual and periodic inventory systems by retail businesses.

31. Which of the following is not an advantage of the perpetual inventory system?

a. A stock-take is not required

b. Allows stock losses to be identified

c. Continuous

d. Allows cost of sales to be calculated at any time

General Feedback:

Learning objective 6.4: account for purchases of inventory and cost of sales under both the perpetual and periodic inventory systems by retail businesses.

32. Under the periodic inventory system inventory purchased is debited to which account?

a. Inventory

b. Cost of sales

c. Prepaid expenses

d. Purchases

General Feedback:

Learning objective 6.4: account for purchases of inventory and cost of sales under both the perpetual and periodic inventory systems by retail businesses.

33. In Australia, which of the following businesses is still most likely to use the periodic approach to accounting for inventory?

a. Bookshop

b. Supermarket

c. Pharmacy / Chemist

d. Service station

General Feedback:

Learning objective 6.4: account for purchases of inventory and cost of sales under both the perpetual and periodic inventory systems by retail businesses.

34. Under the perpetual inventory system, what is the entry for the credit purchase of 10 violins at $600 each plus 10% GST?

a. DR Inventory $6000; DR GST receivable $600; CR Accounts payable $6600

b. DR Inventory $6000; CR Accounts payable $5400; CR GST payable $600

c. DR Inventory $6600; CR Accounts payable $6600

d. DR Inventory $6600; CR Accounts payable $6000; CR GST payable $600

General Feedback:

Learning objective 6.4: account for purchases of inventory and cost of sales under both the perpetual and periodic inventory systems by retail businesses.

35. Which of the following is not true of the periodic inventory system?

a. Cost of sales can be calculated only after a physical stocktake.

b. It uses a purchases account.

c. It is the simplest system.

d. It identifies inventory variances.

General Feedback:

Learning objective 6.4: account for purchases of inventory and cost of sales under both the perpetual and periodic inventory systems by retail businesses.

36. Under the perpetual inventory system inventory purchased is debited to which account?

a. Cost of sales

b. Selling expenses

c. Purchases

d. Inventory

General Feedback:

Learning objective 6.4: account for purchases of inventory and cost of sales under both the perpetual and periodic inventory systems by retail businesses.

37. Under the perpetual inventory system, and including GST, what is the entry to record the return of faulty goods to a supplier?

a. DR Accounts payable, CR Purchases, CR GST receivable

b. DR Accounts payable, CR Inventory, CR GST receivable

c. DR Inventory, CR Purchases returns, CR GST receivable

d. DR Inventory, DR GST receivable, CR Accounts payable

General Feedback:

Learning objective 6.4: account for purchases of inventory and cost of sales under both the perpetual and periodic inventory systems by retail businesses.

38. Brisbane sold goods to Darwin on credit at a price of $880 including GST. What is the entry to record this transaction in Brisbane's books under either the perpetual or periodic inventory system? (Ignore the transfer to Cost of Sales required under the perpetual system.)

a. DR Accounts receivable $880; CR Sales $800, CR GST payable $80

b. DR Accounts receivable $800; CR Sales $800

c. DR Accounts receivable $800; DR GST payable $80; CR Sales $880

d. DR Accounts receivable $880; CR Sales $880

General Feedback:

Learning objective 6.4: account for purchases of inventory and cost of sales under both the perpetual and periodic inventory systems by retail businesses.

39. Under the periodic inventory system a/an ___________ is required before the cost of sales can be estimated.

a. audit

b. error check

c. virus scan

d. stocktake

General Feedback:

Learning objective 6.4: account for purchases of inventory and cost of sales under both the perpetual and periodic inventory systems by retail businesses.

40. Under the perpetual inventory system an inventory variance can be calculated as the difference between:

a. beginning inventory less ending inventory.

b. None of these options. An inventory loss cannot be calculated using the perpetual inventory system.

c. the total purchases for the period and the ending inventory balance.

d. the balance of the inventory account in the ledger and the total of the physical stocktake.

General Feedback:

Learning objective 6.4: account for purchases of inventory and cost of sales under both the perpetual and periodic inventory systems by retail businesses.

41. The use of computers has been a breakthrough for the perpetual inventory system. Many retail businesses use optical-scan cash registers to read barcodes. The scanners record the sale and, at the same time, update the inventory records with the of the sale.

a. date

b. fair value

c. cost

d. discount

General Feedback:

Learning objective 6.4: account for purchases of inventory and cost of sales under both the perpetual and periodic inventory systems by retail businesses.

42. Under the perpetual inventory system, what is the entry to record the cost price of goods sold for cash?

a. DR Cost of sales, CR Purchases

b. DR Inventory, CR Cost of sales

c. DR Cost of sales, CR Inventory, CR GST receivable

d. DR Cost of sales, CR Inventory

General Feedback:

Learning objective 6.4: account for purchases of inventory and cost of sales under both the perpetual and periodic inventory systems by retail businesses.

43. The opening balance in the inventory account under a periodic inventory system represents:

a. inventory on hand at the end of the previous period as determined by a physical stocktake.

b. opening inventory plus purchases less ending inventory.

c. inventory on hand at the end of the current period as determined by a physical stocktake.

d. inventory on hand at the end of the current period before allowing for any inventory variances.

General Feedback:

Learning objective 6.4: account for purchases of inventory and cost of sales under both the perpetual and periodic inventory systems by retail businesses.

44. Under the periodic inventory system, the______________ of each sale is not recorded.

a. cost price

b. discount

c. quantity

d. selling price

General Feedback:

Learning objective 6.4: account for purchases of inventory and cost of sales under both the perpetual and periodic inventory systems by retail businesses.

45. If beginning inventory was $20 000, total purchases for the period were $80 000, freight-in was $4 000 and ending inventory was $45 000, the cost of sales for the period would be:

a. $76 000

b. $84 000

c. $51 000

d. $59 000

General Feedback:

Learning objective 6.4: account for purchases of inventory and cost of sales under both the perpetual and periodic inventory systems by retail businesses.

46. Under the periodic inventory system, what is the entry for the cash purchase of 5 electric guitars at $500 each, plus 10% GST?

a. DR Purchases $2750; CR Bank $2500; CR GST payable $250

b. DR Purchases $2500; DR GST receivable $250; CR Bank $2750

c. DR Purchases $2750; CR Bank $2750

d. DR Accounts payable $2750; CR Purchases $2500; CR GST payable $250

General Feedback:

Learning objective 6.4: account for purchases of inventory and cost of sales under both the perpetual and periodic inventory systems by retail businesses.

47. The ____________ inventory system involves keeping a current and continuous record of the movement in each item of inventory.

a. perpetual

b. physical

c. periodic

d. current

General Feedback:

Learning objective 6.4: account for purchases of inventory and cost of sales under both the perpetual and periodic inventory systems by retail businesses.

48. Under the perpetual inventory system, what is the correct entry for the credit purchase of 10 electric keyboards at $100 per keyboard plus GST of 10%?

a. DR Inventory $1100; CR Accounts payable $1000; CR GST payable $100

b. DR Inventory $1100; CR Accounts payable $1100

c. DR Accounts payable $1100; CR Inventory $1000; CR GST payable $100

d. DR Inventory $1000; DR GST receivable $100; CR Accounts payable $1100

General Feedback:

Learning objective 6.4: account for purchases of inventory and cost of sales under both the perpetual and periodic inventory systems by retail businesses.

49. The account that measures the expense of the inventory sold during the period is called:

a. cost of sales.

b. gross profit

c. purchases.

d. cost of completed goods.

General Feedback:

Learning objective 6.4: account for purchases of inventory and cost of sales under both the perpetual and periodic inventory systems by retail businesses.

50. Under the perpetual inventory system, the number of accounting entries required to record a credit sale is:

a. 4.

b. 3.

c. 2.

d. 1.

General Feedback:

Learning objective 6.4: account for purchases of inventory and cost of sales under both the perpetual and periodic inventory systems by retail businesses.

51. Using the periodic approach to accounting for inventory, beginning inventory plus purchases minus ending inventory as determined by a physical stocktake, is assumed to equal:

a. gross profit.

b. cost of sales.

c. selling expenses.

d. inventory turnover.

General Feedback:

Learning objective 6.4: account for purchases of inventory and cost of sales under both the perpetual and periodic inventory systems by retail businesses.

52. Under a periodic inventory system, if inventory at the start of the period is $15 000, purchases for the period are $73 000 and inventory at the end of the period, as per a physical stocktake is $20 000, what is the estimated cost of sales?

a. $108 000

b. $53 000

c. $68 000

d. $88 000

General Feedback:

Learning objective 6.4: account for purchases of inventory and cost of sales under both the perpetual and periodic inventory systems by retail businesses.
Feedback: With a periodic inventory system, estimated cost of sales is $68 000 = inventory at start + purchases - inventory at end ($15 000 + $73 000 - $20 000).

53. The account used by the purchaser to record the amount of discount granted by its suppliers for prompt payment is called the:

a. discount allowed account.

b. discount taken account.

c. discount received account.

d. financial discount account.

General Feedback:

Learning objective 6.4: account for purchases of inventory and cost of sales under both the perpetual and periodic inventory systems by retail businesses.

54. Under the periodic inventory system, what is the correct entry to record the cost of the sale of a dining suite sold to a customer for $1650 including 10% GST? (The dining suite was originally purchased on credit for $990 including GST of $90).

a. DR Purchases $900; CR Inventory $900

b. The cost of each sale is not recorded under the periodic inventory system

c. DR Cost of sales $900; CR Inventory $900

d. DR Purchases $1650; CR Sales $1650

General Feedback:

Learning objective 6.4: account for purchases of inventory and cost of sales under both the perpetual and periodic inventory systems by retail businesses.

55. If closing inventory were overstated profit for the current period would be:

a. overstated.

b. negative.

c. unaffected.

d. understated.

General Feedback:

Learning objective 6.5: prepare worksheets and close the accounts for retail businesses for both the perpetual and periodic inventory systems.

56. Under the perpetual inventory method, which of the following entries would be a closing entry at the end of the accounting period?

a. DR Profit or loss summary; CR Cost of sales

b. DR Profit or loss summary; CR Inventory

c. DR Inventory; CR Profit or loss summary

d. DR Profit or loss summary; CR Purchases

General Feedback:

Learning objective 6.5: prepare worksheets and close the accounts for retail businesses for both the perpetual and periodic inventory systems.

57. When interim accounting reports are prepared on a worksheet and the periodic method of accounting for inventory is used, closing inventory is:

a. is recorded as a debit to the inventory asset account and as CR to the gross profit account.

b. recorded in the statement of financial performance debit column as a deduction from cost of sales and in the statement of financial position debit column as a current asset.

c. not recorded.

d. recorded in the statement of financial performance credit column as a deduction from cost of sales and in the statement of financial position debit column as a current asset.

General Feedback:

Learning objective 6.5: prepare worksheets and close the accounts for retail businesses for both the perpetual and periodic inventory systems.

58. When preparing a statement of financial performance for a retailer how will each of the following items be classified?
I. Discount allowed; and
II. Depreciation of sales-person's motor vehicles

a. Administrative expenses; selling and distribution expenses

b. Selling and distribution expenses; selling and distribution expense

c. Finance expenses; selling and distribution expenses

d. Finance expenses; administrative expenses

General Feedback:

Learning objective 6.6: prepare a statement of financial performance for a retail business.

59. Cost of goods available for sale is equal to:

a. Net purchases - ending inventory

b. Beginning inventory + net purchases - ending inventory

c. Beginning inventory + net purchases

d. Beginning inventory - ending inventory

General Feedback:

Learning objective 6.6: prepare a statement of financial performance for a retail business.

60. With regards to the statement of financial performance for a retailer, which of the following statements is correct?

a. Under the periodic system freight inwards is added to the cost of purchases.

b. The cost of sales section is the same no matter whether the periodic or perpetual inventory system is used.

c. Interest revenue is added to sales revenue to calculate gross profit.

d. Expenses are classified into the groupings selling expenses, distribution expenses, and administrative and finance expenses.

General Feedback:

Learning objective 6.6: prepare a statement of financial performance for a retail business.

61. Assuming that the net price method of recording purchases is used and that the business uses the perpetual method of inventory recording, the correct entry to record the purchase of goods for $5000 on credit, with terms of 2/10, n/30 is (ignore GST).

a. DR Purchases $5000; CR Accounts payable $4900; CR Discount allowed $100

b. DR Inventory $5000; CR Accounts payable $5000

c. DR Inventory $4900; DR Discount allowed $100: CR Accounts payable $5000

d. DR Inventory $4900; CR Accounts payable $4900

General Feedback:

Learning objective 6.7: describe the net method of recording purchases and sales whenever there are settlement discounts.

62. The formula, gross profit divided by sales, will calculate the:

a. inventory ratio

b. sales ratio

c. cost of sales ratio

d. gross profit ratio

General Feedback:

Learning objective 6.8: perform a brief analysis of profitability in a retail business for decision-making purposes.

63. Which of the following statements is not true?

a. A decline in the gross profit ratio represents an unfavourable trend.

b. A decline in the gross profit ratio can be caused by decreases in the cost of sales.

c. The gross profit ratio can be compared with ratios for similar businesses.

d. The gross profit ratio is calculated as gross profit divided by net sales.

General Feedback:

Learning objective 6.8: perform a brief analysis of profitability in a retail business for decision-making purposes.

65. The formula for calculating the gross profit ratio is:

a. Sales/gross profit

b. Gross profit after tax/sales

c. Cost of sales/sales

d. Gross profit /sales

General Feedback:

Learning objective 6.8: perform a brief analysis of profitability in a retail business for decision-making purposes.