Chapter 3

Question 1

Merchandising Businesses

Answer 1

Companies that buy and resell merchandise inventory

Question 2

Merchandise Inventory

Answer 2

Supply of finished goods held for resale to customers

Question 3

Retail Companies

Answer 3

Companies that sell goods to consumers

Question 4

Wholesale Companies

Answer 4

Companies that sell goods to other businesses

Question 5

Product Costs

Answer 5

Cost of Goods Sold — All costs related to obtaining or manufacturing a product intended for sale to customers

Question 6

Selling and Administrative Costs

Answer 6

Costs that cannot be directly traced to products that are recognized as expenses in the period in which they are incurred

Question 7

Period Costs

Answer 7

General, selling, and administrative costs that are expensed in the period in which the economic sacrifice is made

Question 8

Cost of Goods Available for Sale

Answer 8

Total costs paid to obtain goods and make them ready for sale

Question 9

Cost of Goods Sold

Answer 9

Total cost incurred for the goods sold during a specific accounting period

Question 10

Gross Margin

Answer 10

Difference between sales revenue and cost of goods sold

Question 11

Gross Margin Formula

Answer 11

Gross Margin = Sales Revenue - COGS

Question 12

Gross Margin Formula - FiFo

Answer 12

Gross Margin = Sales Revenue - COGS
Gross Margin = (goods sold * price sold) - (beginning inventory to recent purchase * price sold)

Question 13

Gross Margin Formula - LiFo

Answer 13

Gross Margin = Sales Revenue - COGS
Gross Margin = (goods sold * price sold) - (recent purchase to beginning inventory * price sold)

Question 14

Gross Margin Formula - Weighted Average

Answer 14

Gross Margin = Sales Revenue - Average COGS
Gross Margin = (goods sold * price sold) - (average of all COGS)

Question 15

Ending Inventory Formula

Answer 15

EI = Cost of goods available for sale - COGS

Question 16

Cost of Goods Available for Sale Formula

Answer 16

Sum of whole inventory

Question 17

Perpetual Inventory System

Answer 17

Method of accounting for inventories that increases the inventory account each time merchandise is purchased and decreases it each time merchandise is sold — Always changing

Question 18

Allowance

Answer 18

A reduction in the cost of purchases resulting from dissatisfaction with merchandise purchased

Question 19

Cash Discounts

Answer 19

Discount offered on merchandise sold to encourage prompt payment

Question 20

2/10, n/30

Answer 20

When there is a 2% discount on purchases if paid within the first 10 days or net payment if paid within the first 30 days

Question 21

FOB Shipping Point

Answer 21

Term that designates the buyer as the responsible party for freight costs

Question 22

FOB Destination

Answer 22

Term that designates the seller as the responsible party for freight costs

Question 23

Transportation-In

Answer 23

Cost of freight on goods purchased under terms FOB shipping point that is usually added to the cost of inventory and is a product cost

Question 24

Transportation-Out

Answer 24

Freight cost for goods delivered to customers under terms FOB Destination — A period cost expensed when it is incurred

Question 25

Shrinkage

Answer 25

A term that reflects decreases in inventory for reasons other than sales to customers

Question 26

Operating Income

Answer 26

Income Statement subtotal representing the difference between operating revenues and operating expenses

Question 27

Multi-step income statements

Answer 27

income statement format that matches particular revenue items with related expense items and distinguishes between recurring operating activities and non operating items such as gains and losses

Question 28

Single-step income statements

Answer 28

single comparison between total revenues and total expenses

Question 29

Contra Sales Account

Answer 29

Sales discounts - cash discount extended by the seller of goods to encourage prompt payment

Sales Returns and Allowances - A reduction in sales revenue resulting from dissatisfaction with merchandise sold

Question 30

Net Sales

Answer 30

Sales less returns from customers and allowances or cash discounts given to customers

Question 31

Common Size financial statements

Answer 31

Financial statements in which amounts are converted to percentages to allow a better comparison of period-to-period and company-to-company financial data since all information is placed on a common basis