Ch 5 Accounting for Merchandising Operations Flashcards
contra revenue account
An account with the opposite balance (debit) compared with its related revenue account, which has a credit balance. The contra revenue account is deducted from the revenue account on the income statement. (p. 248)
control account
An account in the general ledger that summarizes the detail for a subsidiary ledger and controls it. (p. 242)
cost of goods available for sale
The cost of the goods on hand at the beginning of the period (beginning inventory) plus the cost of goods purchased during the period. (p. 265)
cost of goods purchased
Net purchases (purchases minus purchase returns and allowances and purchase discounts) plus freight in. (p. 264)
cost of goods sold
The total cost of merchandise sold during the period. In a perpetual inventory system, it is calculated and recorded for each sale. In a periodic inventory system, the total cost of goods sold for the period is calculated at the end of the accounting period by deducting ending inventory from the cost of goods available for sale. (p. 238)
FOB destination
A freight term indicating that the buyer accepts ownership when the goods are delivered to the buyer’s place of business. The seller pays the shipping costs and is responsible for damages to the goods during transit. (p. 243)
FOB shipping point
A freight term indicating that the buyer accepts ownership when the goods are placed on the carrier by the seller. The buyer pays freight costs from the shipping point to the destination and is responsible for damages. (p. 243)
function
A method of classifying expenses on the income statement based on which business function the resources were spend on (e.g., cost of sales, administration, and selling). (p. 255)
gross profit
Sales revenue (net sales) less cost of goods sold. (p. 238)
gross profit margin
Gross profit margin expressed as a percentage of net sales. It is calculated by dividing gross profit by net ales. (p. 259)
gross sales
Total sales before deducting the contra revenue accounts. (p. 249)
multiple-step income statement
An income statement that shows several steps to determine profit or loss. (p. 256)
nature
A method of classifying expenses on the income statement based on what the resources were spent on (e.g., depreciation, employee costs, transportation, and advertising). (p. 255)
net purchases
Purchases minus purchase returns and allowances and purchase discounts. (p. 264)
net sales
Sales less sales returns and allowances and sales discounts. (p. 249)
non-operating activities
Other revenues and expenses that are unrelated to the company’s main operations. (p. 257)
operating expenses
Expenses incurred in the process of earning sales revenue. They are deducted from gross profit in the income statement. (p. 238)
periodic inventory system
An inventory system where detailed inventory records are not updated whenever a transaction occurs. The cost of goods sold is determined only at the end of the accounting period. (p. 239)
perpetual inventory system
An inventory system where detailed records, showing the quantity and cost of each inventory item, are updated whenever a transaction occurs. The records continuously show the inventory that should be on hand. (p. 239)
profit from operations
Profit from a company’s main operating activity, determined by subtracting operating expenses from gross profit. (p. 257)
profit margin
Profit expressed as a percentage of net sales. It is calculated by dividing profit by net sales. (p. 260)
profitability ratios
Measures of a company’s profit or operating success (or shortcomings) for a specific period of time. (p. 259)
purchase discount
A discount, based on the invoice price less any returns and allowances, given to a buyer for early payment of a balance due. (p. 244)
purchase return (allowance)
The return, or reduction in price, of unsatisfactory merchandise that was purchased. They result in a debit to Cash or Accounts Payable. (p. 244)
quantity discount
A cash discount that reduces the invoice price and is given to the buyer for volume purchases. (p. 244)
sales discount
A reduction, based on the invoice price less any returns and allowances, given by a seller for early payment of a credit sale. (p. 249)
sales returns (allowances)
The return, or reduction in price, of unsatisfactory merchandise that was sold. They result in a credit to Cash or Accounts Receivable. (p. 248)
sales revenue
The main source of revenue in a merchandising company. (p. 238)
single-step income statement
An income statement that shows only one step (revenues less expense) in determining profit (or loss). (p. 255)
subsidiary ledger
A group of accounts that give details for a control account in the general ledger. (p. 242)
