Ch 4 Flashcards
What is inventory classified as on the balance sheet?
Current asset
What is referred to as the products the company owns and intends to sell?
Merchandise inventory
How is merchandise inventory reported on the balance sheet?
Current asset
What does the cost of the merchandise inventory include?
The cost to buy goods, the cost to ship them tothe store, and the cost to make them ready fore sale
What do multiple-step income statements show?
Shows both gross profit and income from operations
What are net sales?
Sales - sales discounts - sales returns and allowances
What are sales returns?
Customers returning merchandise back to the seller for a refund
What is gross profit equal to?
Sales - costs of goods sold
What is the term used for the expense of buying and preparing merchandise for sale?
Cost of goods sold
What are the arrangements between buyer and seller as to when payments for merchandise are to be made called?
Credit terms
Who is responsible for the freight costs when the terms are F.O.B. Shipping point?
The buyer
Who is responsible for the freight costs when the terms are F.O.B. Destination?
The seller
What type of company would normally offer trade discounts to its customers?
Wholesalers
The inventory system employing accounting records that continuously disclose the amount of inventory is called…
Perpetual
Under the periodic inventory system, the journal entry to record the purchase of inventory will
Include a debit to…
Purchases
What is the primary difference between the periodic and perpetual inventory systems?
Periodic system determines the inventory on hand only at the end of the accounting period
How do we record the transaction of purchases of merchandise that are made on account with a perpetual inventory system?
Debit inventory, credit accounts payable
What are general and administrative expenses?
Expenses that support a company’s overall operations and include expenses related to accounting, Human Resources, and finances
What are selling expenses?
Expenses that are incurred directly or entirely in connection with the selling of merchandise
Inventory shrinkage is recorded when…
There is a difference between a physical count of inventory and inventory records
If the physical count of inventory revealed less inventory on hand than the inventory records reported, the necessary adjusting entry record inventory shrinkage would be…
Debit cost of goods sold, credit inventory
What are the 2 journal entries made when inventory is sold in the perpetual method?
- Debit cash (or accounts receivable), credit sales (revenue account)
- Debit cost of goods sold ( expense account), credit inventory
Assets go down by…
Credits
Purchase inventory is _________ to the inventory account
Debited (credit cash)
