Basic Financial Accounting - Goods For Resale, Cogs And Trade Creditors

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| By ZukoDaniel
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Basic Financial Accounting - Goods For Resale, Cogs And Trade Creditors - Quiz

How to post goods for resale, COGS and trade creditors. A thorough course in Basic Financial accountingImage courtesy of adamr / FreeDigitalPhotos. Net


Questions and Answers
  • 1. 

    14. Journal entry of goods for resale - Cash purchase without VATA trading company just purchased goods for resale. The total purchase amount for the goods was 500.000. The goods were paid for in cash upon delivery.How should the information above be posted?

    • A.

      The cash account (asset) is debited 500.000 while the inventory account (asset) is credited 500.000.

    • B.

      The trade creditors account (liability) is credited 500.000 while the inventory account (asset) is debited 500.000.

    • C.

      The cash account (asset) is credited 500.000 while the inventory account (asset) is debited 500.000.

    • D.

      The trade creditors account (liability) is credited 500.000 while the cost of goods sold account (profit/loss) is debited 500.000.

    Correct Answer
    C. The cash account (asset) is credited 500.000 while the inventory account (asset) is debited 500.000.
    Explanation
    The correct answer is the first option because when goods are purchased for resale and paid for in cash, the cash account (asset) is credited to reflect the decrease in cash, while the inventory account (asset) is debited to show the increase in inventory. This follows the basic accounting principle of double-entry, where every transaction has equal debits and credits.

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  • 2. 

    15. Journal entry of goods for resale - Cash purchase with VATA trading company just purchased goods for resale. The total purchase amount for the goods was 250.000 of which 50.000 is VAT. The VAT amount is fully deductible. The goods were paid for in cash upon delivery. How should the information above be posted? 

    • A.

      The cash account (asset) is debited 250.000 while the inventory account (asset) is credited 200.000. Finally the input VAT account (liability) is credited 50.000.

    • B.

      The trade creditors account (liability) is credited 250.000 while the inventory account (asset) is debited 200.000. Finally the input VAT account (liability) is debited 50.000.

    • C.

      The cash account (asset) is credited 250.000 while the inventory account (asset) is debited 200.000. Finally the output VAT account (liability) is debited 50.000.

    • D.

      The cash account (asset) is credited 250.000 while the inventory account (asset) is debited 200.000. Finally the input VAT account (liability) is debited 50.000.

    Correct Answer
    D. The cash account (asset) is credited 250.000 while the inventory account (asset) is debited 200.000. Finally the input VAT account (liability) is debited 50.000.
    Explanation
    The correct answer is the first option: The cash account (asset) is credited 250.000 while the inventory account (asset) is debited 200.000. Finally, the input VAT account (liability) is debited 50.000. This is because the company purchased goods for resale and paid for them in cash, so the cash account is credited. The inventory account is debited to record the increase in inventory. The input VAT account is debited to account for the VAT paid, which is fully deductible.

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  • 3. 

    16. Journal entry of goods for resale - Credit purchase without VATA trading company just purchased goods for resale. The total purchase amount for the goods was 400.000. The vendor is granting a payment time of 45 days. How should the information above be posted? 

    • A.

      The trade creditors account (liability) is debited 400.000 while the inventory account (asset) is credited 400.000.

    • B.

      The trade creditors account (liability) is credited 400.000 while the inventory account (asset) is debited 400.000.

    • C.

      The other creditors account (liability) is credited 400.000 while the inventory account (asset) is debited 400.000.

    • D.

      The other creditors account (liability) is credited 400.000 while the prepaid expenses account (asset) is debited 400.000.

    Correct Answer
    B. The trade creditors account (liability) is credited 400.000 while the inventory account (asset) is debited 400.000.
    Explanation
    The correct answer is that the trade creditors account (liability) is credited 400.000 while the inventory account (asset) is debited 400.000. This is because when goods are purchased for resale on credit, the trade creditors account is credited to reflect the increase in the liability owed to the vendor. At the same time, the inventory account is debited to reflect the increase in the asset of goods held for resale. This follows the basic accounting principle of double-entry, where every transaction has equal debits and credits.

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  • 4. 

    17. Journal entry of goods for resale – Credit purchase with VAT A trading company just purchased goods for resale. The total purchase amount for the goods was 300.000 of which 60.000 is VAT. The VAT amount is fully deductible. The vendor is granting a payment time of 45 days. How should the information above be posted? 

    • A.

      The trade creditors account (liability) is credited 300.000 while the inventory account (asset) is debited 240.000. Finally the output VAT account (liability) is debited 60.000.

    • B.

      The trade creditors account (liability) is credited 300.000 while the cost of goods cold account (profit/loss) is debited 240.000. Finally the input VAT account (liability) is debited 60.000.

    • C.

      The trade creditors account (liability) is credited 300.000 while the inventory account (asset) is debited 240.000. Finally the input VAT account (liability) is debited 60.000.

    • D.

      The trade creditors account (liability) is debited 300.000 while the inventory account (asset) is credited 240.000. Finally the input VAT account (liability) is credited 60.000.

    Correct Answer
    C. The trade creditors account (liability) is credited 300.000 while the inventory account (asset) is debited 240.000. Finally the input VAT account (liability) is debited 60.000.
    Explanation
    The correct answer is that the trade creditors account is credited 300.000 while the inventory account is debited 240.000. This is because the company purchased goods for resale, so it incurred a liability to the vendor (trade creditors account) for the full purchase amount of 300.000. The company also acquired an asset (inventory) worth 240.000, which represents the cost of the goods. Additionally, the company paid VAT of 60.000, which is a liability (input VAT account) that is fully deductible. Thus, the input VAT account is debited for 60.000.

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  • 5. 

    18. Journal entry of credit note from vendors (trade creditors) – without VAT A company just received a credit note from its vendor for a part of a previous purchase. The value of the credit note is 30.000. How should the information above be posted? 

    • A.

      The trade debtors account (asset) is debited 30.000 while the inventory account (asset) is credited 30.000.

    • B.

      The trade creditors account (liability) is debited 30.000 while the inventory account (asset) is credited 30.000.

    • C.

      The trade creditors account (liability) is credited 30.000 while the inventory account (asset) is debited 30.000.

    • D.

      The revenue account (profit/loss) is credited 30.000 while the inventory account (asset) is debited 30.000.

    Correct Answer
    B. The trade creditors account (liability) is debited 30.000 while the inventory account (asset) is credited 30.000.
  • 6. 

    19. Journal entry of credit note from vendors (trade creditors) – with VAT A company just received a credit note from its vendor for a part of a previous purchase. The value of the credit note is 50.000 including 10.000 in VAT. How should the information above be posted? 

    • A.

      The trade creditors account (liability) is debited 50.000 while the inventory account (asset) is credited 40.000. Finally the input VAT account (liability) is credited 10.000.

    • B.

      The other creditors account (liabilities) is credited 50.000 while the prepaid expenses account (asset) is credited 40.000. Finally the input VAT account (liability) is credited 10.000.

    • C.

      The trade creditors account (liability) is credited 50.000 while the inventory account (asset) is debited 40.000. Finally the input VAT account (liability) is debited 10.000.

    • D.

      The trade creditors account (liability) is debited 50.000 while the inventory account (asset) is credited 40.000. Finally the output VAT account (liability) is credited 10.000.

    Correct Answer
    A. The trade creditors account (liability) is debited 50.000 while the inventory account (asset) is credited 40.000. Finally the input VAT account (liability) is credited 10.000.
    Explanation
    The credit note received from the vendor is a reduction in the amount owed to the vendor, so the trade creditors account (liability) should be debited for the full amount of 50,000. The inventory account (asset) should be credited for the value of the goods returned, which is 40,000. The VAT amount of 10,000 should be credited to the input VAT account (liability), as it represents a reduction in the VAT liability for the company.

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  • 7. 

    20. Journal entry of return of goods for resale The company just received returned goods from a customer. The goods are undamaged and the company expect that the goods can be sold to another customer. The cost of the goods previously posted was 45.000.How should the information above be posted? 

    • A.

      The inventory account (asset) is credited 45.000 while the cost of goods sold account (profit/loss) is debited 45.000.

    • B.

      The trade creditors account (liabilities) is debited 45.000 while the cist of good sold (profit(loss)is credited 45.000.

    • C.

      The trade debtors account (asset) is debited 45.000 while the inventory account (asset) is credited 45.000.

    • D.

      The inventory account (asset) is debited 45.000 while the cost of goods sold account (profit/loss) is credited 45.000.

    Correct Answer
    D. The inventory account (asset) is debited 45.000 while the cost of goods sold account (profit/loss) is credited 45.000.
    Explanation
    When goods are returned for resale, the inventory account should be debited to increase the inventory value, as the company now has more goods available for sale. At the same time, the cost of goods sold account should be credited to reduce the expense associated with the goods that were originally sold but are now being returned. This reflects the fact that the company did not actually incur the cost of selling those goods. Therefore, the correct answer is: The inventory account (asset) is debited 45.000 while the cost of goods sold account (profit/loss) is credited 45.000.

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  • 8. 

    21. Journal entry of cost of goods sold - always ignoring VATA company has just sold a quantity of goods to a costumer. The sales transaction (the invoice to the costumer) has already been posted. The cost of the sale has however not been calculated nor posted. The company is using the FIFO method (first in first out) in valuing its inventory. At the beginning of the year the company had an inventory of 15 pieces with the corresponding value of 200.000. During the year the company has purchased 20 pieces for the amount of 240.000 and then later on another 10 pieces for the amount of 100.000.  The quantity sold was 31 pieces leaving the company with a quantity of 14 pieces in inventory.How should the information above be posted?

    • A.

      The inventory account (asset) is debited 392.000 while the impairment of inventory account (profit/loss) is credited 392.000.

    • B.

      The inventory account (asset) is credited 392.000 while the impairment of inventory account (profit/loss) is debited 392.000.

    • C.

      The inventory account (asset) is credited 392.000 while the cost of goods sold account (profit/loss) is debited 392.000.

    • D.

      The inventory account (asset) is debited 392.000 while the cost of goods sold account (profit/loss) is credited 392.000.

    • E.

      The inventory account (asset) is credited 148.000 while the cost of goods sold account (profit/loss) is debited 148.000.

    • F.

      The inventory account (asset) is debited 148.000 while the cost of goods sold account (profit/loss) is credited 148.000.

    Correct Answer
    C. The inventory account (asset) is credited 392.000 while the cost of goods sold account (profit/loss) is debited 392.000.
    Explanation
    The correct answer is that the inventory account (asset) is credited 392.000 while the cost of goods sold account (profit/loss) is debited 392.000. This is because the cost of goods sold represents the cost of the inventory that has been sold, and it needs to be recorded as an expense in the profit and loss statement. By debiting the cost of goods sold account, the expense is recorded, and by crediting the inventory account, the value of the inventory is reduced.

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  • 9. 

    23. Journal entry of payment to trade creditors (vendors) - always ignoring VAT A company has paid its debt to a vendor from an earlier credit purchase. The amount paid was 70.000. The amount was transferred from the company’s bank account into the vendor’s bank account. How should the information above be posted?

    • A.

      The trade creditors account (liability) is debited 70.000 while the inventory account (asset) is credited 70.000.

    • B.

      The trade creditors account (liability) is debited 70.000 while the bank account (asset) is credited 70.000.

    • C.

      The inventory account (asset) is debited 70.000 while the cost of goods sold account (profit/loss) is credited 70.000.

    • D.

      The inventory account (asset) is credited 70.000 while the cost of goods sold account (profit/loss) is debited 70.000.

    Correct Answer
    B. The trade creditors account (liability) is debited 70.000 while the bank account (asset) is credited 70.000.
    Explanation
    The correct answer is that the trade creditors account (liability) is debited 70.000 while the bank account (asset) is credited 70.000. This is because the company is paying off its debt to the vendor, which is recorded as a decrease in the liability to the trade creditors. At the same time, the company is transferring money from its bank account to the vendor's bank account, which is recorded as a decrease in the company's assets.

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  • 10. 

    22. Journal entry of impairment of goods for resaleA company has an inventory with a total booked value of 120.000. Sadly some of this inventory can no longer be sold due to new legislation prohibiting this and must therefore be disposed of. The net realisable value of this particular inventory is 13.000.How should the information above be posted?

    • A.

      The inventory account (asset) is debited 13.000 while the impairment of inventory account (profit/loss) is credited 13.000.

    • B.

      The inventory account (asset) is credited 107.000 while the impairment of inventory account (profit/loss) is debited 107.000.

    • C.

      The inventory account (asset) is credited 13.000 while the impairment of inventory account (asset) is debited 13.000.

    • D.

      The inventory account (asset) is credited 13.000 while the cost of goods sold account (profit/loss) is debited 13.000.

    Correct Answer
    B. The inventory account (asset) is credited 107.000 while the impairment of inventory account (profit/loss) is debited 107.000.
    Explanation
    When inventory becomes impaired and can no longer be sold, it needs to be written down to its net realizable value. In this case, the net realizable value is 13,000. To record this, the inventory account (asset) needs to be credited for the decrease in value, which is 107,000 (120,000 - 13,000). At the same time, the impairment of inventory account (profit/loss) needs to be debited for the same amount to reflect the loss in value. Therefore, the correct answer is: The inventory account (asset) is credited 107,000 while the impairment of inventory account (profit/loss) is debited 107,000.

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Our quizzes are rigorously reviewed, monitored and continuously updated by our expert board to maintain accuracy, relevance, and timeliness.

  • Current Version
  • Mar 20, 2023
    Quiz Edited by
    ProProfs Editorial Team
  • Mar 13, 2014
    Quiz Created by
    ZukoDaniel
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