CH6 - Accounting for Merchandising Businesses Flashcards
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.
account form
Expenses incurred in the administration or general operations of the business.
administrative expenses (general expenses)
The cost that is reported as an expense when merchandise is sold.
cost of merchandise sold
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.
credit memorandum (credit memo)
The amount of time the buyer is allowed in which to pay the seller.
credit period
Terms for payment on account by the buyer to the seller.
credit terms
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.
debit memorandum (debit memo)
Freight terms in which the seller pays the transportation costs from the shipping point to the final destination.
FOB (free on board) destination
Freight terms in which the buyer pays the transportation costs from the shipping point to the final destination.
FOB (free on board) shipping point
Sales minus the cost of merchandise sold.
gross profit
Revenues less operating expenses and service department charges for a profit or an investment center.
income from operations (operating income)
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.
inventory shrinkage (inventory shortage)
A form of income statement that contains several sections, subsections, and subtotals.
multiple-step income statement
The process by which a company spends cash, generates revenues, and receives cash either at the time the revenues are generated or later by collecting an accounts receivable.
operating cycle
Expenses that cannot be traced directly to operations.
other expense
Revenue from sources other than the primary operating activity of a business.
other income
The inventory system in which the inventory records do not show the amount available for sale or sold during the period.
periodic inventory system
The inventory system in which each purchase and sale of merchandise is recorded in an inventory account.
perpetual inventory system
A detailed listing of merchandise on hand.
physical inventory
Discounts taken by the buyer for early payment of an invoice.
purchases discounts
From the buyer’s perspective, returned merchandise or an adjustment for defective merchandise.
purchases returns and allowances
Ratio that measures how effectively a company uses its assets, computed as net sales divided by average total assets.
ratio of sales to assets
The form of balance sheet with the Liabilities and Owner’s Equity sections presented below the Assets section.
report form
The total amount charged customers for merchandise sold, including cash sales and sales on account.
sales
From the seller’s perspective, discounts that a seller may offer the buyer for early payment.
sales discounts
Expenses that are incurred directly in the selling of merchandise.
selling expenses
A form of income statement in which the total of all expenses is deducted from the total of all revenues.
single-step income statement
Discounts from the list prices in published catalogs or special discounts offered to certain classes of buyers.
trade discounts
