Accounting: Chapter 6: Vocab

Question 1

account form

Answer 1

The form of balance sheet that resembles the basic format of the accounting equation, with assets on the left side and Liabilities and Owner’s Equity sections on the right side.

Question 2

administrative expenses (general expenses)

Answer 2

Expenses incurred in the administration or general operations of the business.

Question 3

cost of merchandise purchased

Answer 3

The cost of net purchases plus transportation costs.

Question 4

cost of merchandise sold

Answer 4

The cost that is reported as an expense when merchandise is sold.

Question 5

credit memorandum (credit memo)

Answer 5

A form used by a seller to inform the buyer of the amount the seller proposes to credit to the account receivable due from the buyer.

Question 6

credit period

Answer 6

The amount of time the buyer is allowed in which to pay the seller.

Question 7

credit terms

Answer 7

Terms for payment on account by the buyer to the seller.

Question 8

debit memorandum (debit memo

Answer 8

A form used by a buyer to inform the seller of the amount the buyer proposes to debit to the account payable due the seller.

Question 9

FOB (free on board) destination

Answer 9

Freight terms in which the seller pays the transportation costs from the shipping point to the final destination.

Question 10

FOB (free on board) shipping point

Answer 10

Freight terms in which the buyer pays the transportation costs from the shipping point to the final destination.

Question 11

freight in

Answer 11

Costs of transportation.

Question 12

gross profit

Answer 12

Sales minus the cost of merchandise sold.

Question 13

income from operations (operating income)

Answer 13

Revenues less operating expenses and service department charges for a profit or an investment center.

Question 14

inventory shrinkage (inventory shortage)

Answer 14

The amount by which the merchandise for sale, as indicated by the balance of the merchandise inventory account, is larger than the total amount of merchandise counted during the physical inventory.

Question 15

invoice

Answer 15

The bill that the seller sends to the buyer.

Question 16

merchandise available for sale

Answer 16

The cost of merchandise available for sale to customers calculated by adding the beginning merchandise inventory to net purchases.

Question 17

merchandise inventory

Answer 17

Merchandise on hand (not sold) at the end of an accounting period.

Question 18

multiple-step income statement

Answer 18

A form of income statement that contains several sections, subsections, and subtotals.

Question 19

net purchases

Answer 19

Determined when purchases returns and allowances and the purchases discounts are deducted from the total purchases.

Question 20

net sales

Answer 20

Revenue received for merchandise sold to customers less any sales returns and allowances and sales discounts.

Question 21

other expense

Answer 21

Expenses that cannot be traced directly to operations.

Question 22

other income

Answer 22

Revenue from sources other than the primary operating activity of a business.

Question 23

periodic inventory system

Answer 23

The inventory system in which the inventory records do not show the amount available for sale or sold during the period.

Question 24

perpetual inventory system

Answer 24

The inventory system in which each purchase and sale of merchandise is recorded in an inventory account.

Question 25

purchase return or allowance

Answer 25

From the buyer’s perspective, returned merchandise or an adjustment for defective merchandise.

Question 26

purchases discounts

Answer 26

Discounts taken by the buyer for early payment of an invoice.

Question 27

report form

Answer 27

The form of balance sheet with the Liabilities and Owner’s Equity sections presented below the Assets section.

Question 28

sales

Answer 28

The total amount charged customers for merchandise sold, including cash sales and sales on account.

Question 29

sales discounts

Answer 29

From the seller’s perspective, discounts that a seller may offer the buyer for early payment.

Question 30

sales returns and allowances

Answer 30

From the seller’s perspective, returned merchandise or an adjustment for defective merchandise.

Question 31

selling expenses

Answer 31

Expenses that are incurred directly in the selling of merchandise.

Question 32

single-step income statement

Answer 32

A form of income statement in which the total of all expenses is deducted from the total of all revenues.

Question 33

trade discounts

Answer 33

Discounts from the list prices in published catalogs or special discounts offered to certain classes of buyers.