Chap 5 Flashcards
Merchandise Inventory
Goods that a company owns and expects to sell to customers; also called inventory.
Gross Method
Method of recording purchases at the full invoice price without deducting any cash discounts.
Periodic Inventory System
Method that records the cost of inventory purchased but does not continuously track the quantity available or sold to customers; records are updated at the end of each period to reflect the physical count and costs of goods available.
Perpetual Inventory System
Method that maintains continuous records of the cost of inventory available and the cost of goods sold.
Net Method
Method of recording purchases at the full invoice price less any cash discounts.
Merchandiser
Entity that earns income by buying and selling merchandise.
Retailer
Intermediary that buys products from manufacturers or wholesalers and sells them to consumers.
Wholesaler
Intermediary that buys products from manufacturers or other wholesalers and sells them to retailers or other wholesalers.
Purchase Discount
Term used by a purchaser to describe a cash discount granted to the purchaser for paying within the discount period.
Purchase Return and Allowance
One is to send the unsatisfactory goods back to the supplier. This is called a purchase return. The other is to keep the unsatisfactory merchandise in return for a price reduction from the supplier. The price reduction from the supplier is called an allowance.
Cash Discount
Reduction in the price of merchandise granted by a seller to a buyer when payment is made within the discount period.
Cost of Goods sold
Cost of inventory sold to customers during a period; also called cost of sales.
Credit Period
Time period that can pass before a customer’s payment is due.
Credit Term
Description of the amounts and timing of payments that a buyer (debtor) agrees to make in the future.
Discount Period
Time period in which a cash discount is available and the buyer can make a reduced payment.
FOB- Shipping Point
means the buyer pays shipping costs and accepts ownership of goods when the seller transfers goods to the carrier
FOB- Destination
means the seller pays shipping costs and the buyer accepts ownership of goods at the buyer’s place of business.
General and Administrative Expenses
Expenses that support the operating activities of a business.
Sales Discount
Term used by a seller to describe a cash discount granted to buyers who pay within the discount period.
Sales Return and Allowances
Refunds or credits given to customers for unsatisfactory merchandise are recorded (debited) in Sales Returns and Allowances, a contra account to Sales. In addition, estimates of future sales returns and allowances (related to current-period sales) are made with an adjusting entry that debits Sales Returns and Allowances; this results in sales being recorded net of expected returns and allowances. Sales Returns and Allowances is a temporary account that is closed each period.
Selling Expenses
Expenses of promoting sales, such as displaying and advertising merchandise, making sales, and delivering goods to customers.
Shrinkage
Inventory losses that occur as a result of theft or deterioration.
Multiple Step Income Statement
Income statement format that shows subtotals between sales and net income, categorizes expenses, and often reports the details of net sales and expenses.
Gross Profit
Net sales minus cost of goods sold; also called gross margin.
Classified Balance Sheet
Balance sheet that presents assets and liabilities in relevant subgroups, including current and noncurrent classifications.
