Ch. 4 Reading Concept Questiosn Flashcards
Cost of goods is
Cost of goods sold is also called cost of sales.
Cost of goods sold is an expense reported on the income statement.
Cost of goods sold is used to figure gross profit.
Cost of goods sold includes the expenses of buying and preparing an item for sale.
Describe merch inventory
an account increased with a debit.
products that a company owns and intends to sell.
an asset account.
an account appearing on a balance sheet of a merchandiser.
Freight terms
Terms FOB shipping point means the buyer accepts ownership when the goods depart the seller’s place of business.
When the shipping costs are the responsibility of the buyer, then the Merchandise Inventory account is debited for the freight charges.
Revenue for the sale will be recorded after the goods reach their destination, if the goods are shipped FOB destination.
Terms FOB destination means that the seller is responsible for shipping costs.
describe the flow of costs in a merchandiser’s accounting cycle
Beginning inventory + net purchases = Merchandise available for sale.
Merchandise that is sold becomes an expense reported on the income statement.
Ending inventory + Cost of goods sold = Total merchandise available for sale.
Merchandise that is purchased becomes an asset reported on the balance sheet.
Closing entries for a merch. using perpetual inventory sys.
Sales Discounts is closed with the expense accounts.
The Dividends account is closed to Retained Earnings
Sales Returns and Allowances is closed with the expense accounts.
Sales is closed as a revenue account.
Cost of goods sold is closed with the expense accounts.
merchandiser’s multi-step income statement order
- Net sales
- Cost of goods
- Gross profit
- Expenses
- Net income
Single-step income statement shows
subtracts total expenses, including cost of goods sold, from total revenues with no other subtotals.
( shows only one subtotal for expenses.)
Merch. acc. to close
Close the dividends account.
Close revenue accounts.
Close expense accounts.
Close the income summary account.
Merchandise Inventory account on a classified balance sheet is reported in the:
current assets section
Acid- ratio test is used to
measure of merchandiser’s ability to pay its current liabilities
What is the acid-test ratio
cash+ cash equivalents + short-term investments + current receivables/ current liabilities
In a merchandiser’s multi-step income statement
Cost of goods sold is subtracted from net sales in order to determine gross profit.
Expenses are subtracted from gross profit in order to calculate net income.
Net income method records an invoice at
full invoice price - any cash discounts
Net method
Records purchases at the full invoice price LESS any cash discounts
Gross method
Records purchases at the full invoice price WITHOUT deducting any cash discounts.
