 In this presentation, we will take a look at multiple choice questions related to a merchandising company. First question, which account is a temporary account with a credit balance? A. Sales discount. B. Sales return and allowances. C. Cost of goods sold. D. Operating expenses or E. Sales. Once again, going through this question, we're going to say the question is which account is a temporary account with a credit balance? So we're going to go through this now. Note this definition is one that we can't really just kind of answer it before we go through the questions. It could be a lot of different types of accounts, but we could try to think of what is a temporary account and which type of accounts are temporary, which accounts would have debit and credit balances. Temporary accounts are typically accounts that we see in closing process. So those accounts are going to be closed out. And therefore those include income statement accounts, revenue and expense, and they include the balance, I mean do not include the balance sheet account. So revenue expense accounts and the draws account or dividends account. Now, if we think about revenue and expenses, we can think that there's going to be the accounts that have debit or credit balances. We have revenue or expenses. All the expenses have debit balances and the revenue accounts typically have credit balances. So there you might think it's something to do with revenue. Now, looking at this question, you might think, hmm, we're on, if we're looking at questions related to merchandising companies as well. And you might think temporary accounts kind of relates to the closing process, kind of a different topic. So if you're working on a question where you're working on a related topic, and you see something that might apply somewhere else, well, how would it apply to this topic? It might be applying to some types of accounts that are going to be related in the closing process, but are not on a service company, they're included in merchandising type companies. So let's go through these once more with this question in mind. So the question once again, which account is a temporary account with a credit balance? We're going to cross these out using the process of elimination. A sales discount. Sales discount, you might look at that and go, I'm not really sure it's got sales in it. Remember, we said that all expenses have debit balances. It seems like it's going to be a temporary account because sales discount is on the income statement. But we might get a little confused as to whether it will be a debit or credit balance. So I'm going to keep that for now. B says sales returns and allowances. And again, it's the same thing. It's a temporary account. But we might say, I'm not sure if it's a debit or credit because it's a different account. It's got sales in it. And so is it revenue or is it an expense account? So I'm going to come back to that one. C says cost of goods sold. Now that's basically an expense account. Cost of goods sold is the expense related to us selling inventory. And you might want to think about recording a normal journal entry with cost of goods sold selling something where we debit the cost of goods sold and credit the inventory in order to say, yeah, that's a debit balance, not a credit. So that's not it. D says operating expenses. That's going to be all the expenses. And all the expenses typically have debit balances. It's an expense. It's got a debit balance, not a credit. It is a temporary account, but it'll have a credit debit balance, not a credit. So that's not it. And then sales. Sales is our income statement account. That's our income account. And we know that the income accounts have credit balances. So this one's on the income statement. It's temporary and it has a credit balance. That sounds pretty good. So I'm going to go through these one more time and we'll cross this out. We're left with a B and E question once again, which account is a temporary account with a credit balance? A sales discount, B sales returns and allowances or E sales. So we're left with these three all having the word sales in it. And the thing that's confusing about these first two is they're not on a service company. They're only on a merchandising company with a multi step type of income statement. And they're really not revenue or expense accounts. Really, they're going to be contra revenue accounts, meaning they're bringing down revenue. So they act like expenses, but they're kind of related to the revenue section, but they act like expenses and therefore have debit balances. So these are the things that are kind of reversing the revenue reversing sales. Sales has a credit balance. These are bringing down that balance. So the answer is actually is going to be sales. So sales is it E one more time question, rating question of which account is a temporary account with a credit balance answer? E sales. Next question. Multi step income statements A are required by the FASB, FASB and IASB. B contain more detail than a single step income statement. C are too long. D list cost of goods sold as an operating expense or E are only used in service companies. So one more time, we're going to read this. We're going to go through the process of elimination and see what we are left with question of multi step income statements. A, so we might first want to define that to ourselves and then think about which of these apply to it. So a multi step income statement, you kind of want to apply it against some other thing. And that other thing is typically a single step income statement. So a single step income statement, you can think of as being the closest thing of income statement form to just the calculation of net income, meaning it only has two parts, basically a single step income statement, which is half all revenue grouped together, all expenses grouped together, and then subtract revenue minus expenses to arrive at net income. A multi step income statement by contrast is going to have multiple steps. So we're still going to get to net income, but we're going to have more subgroups, and that's really useful for a merchandising company because we really want to know that relationship between cost of goods sold in particular and the revenue because cost of goods sold and revenue are a really important relationship. That's our first step. That's going to be gross profit. Well, that's going to be a step, which will be gross profit. So we're just going to have more steps along the way in a multi step. Knowing that we'll go through once again question multi step income statements a are required by FASB and the IASB. So these are kind of regulatory agencies. And so we might not know that we might say that could be. So let's let's keep that one for now. B contain more detail than a single step income statement contain more detail than a single step income statement. Well, that seems reasonable because there's more steps in it. So that seems like it's true. C are too long. Well, that's kind of an opinion or a statement. That's a little bit subjective of a statement here. So obviously some people might think it's too long and prefer a single step income statement because they just want to see the bottom line just to give me the facts, give me the bottom line or some people might say, Hey, I need more information to make a good decision and I want more information. So that's kind of subjective and I would remove opinionated statements. D list costs of goods sold as an operating expense. So list cost of goods sold as an operating expense. Now that's a little bit tricky because the cost of goods sold will be on the on the multi step income statement. But we're saying if it's if it's just going to be a normal operating expense, we're that's not really words typically on it's going to be grouped out into its own category of top. So if we grouped it up with operating expenses, I think they're saying that's going to be grouping them with every other expense and in a single step type of format. And so we're not doing that. We're breaking it out of operating expenses to its own portion in a multi step. So I'm going to say that's not it. And then he says are only used in service companies. Now service companies don't have cost of goods sold. So they don't, you know, it's more likely that a merchandising company would want more steps than a service company. So the multi step income statement is is most often or has most steps in a in a merchandising company. So it's certainly not restricted to just service companies. So saying that's not true. So if we go through this one more time, we're left with A and B question. Once again, multi step income statements either a are required by the FASB and IASB regulatory bodies and or B contain more detail than a single step income statement. Now of those two, the A we might say, that could be true. I don't you know, under certain circumstances, but B seems certainly true that contain more detail. If we have more steps, we're going to have more detail, we're going to have more subcategories, more areas where people can have ratio calculations and all that great stuff. So we're going to say that B looks like more of the correct answer. Once again, question of multi step income statements answer B contain more detail than a single step income statement.