chapter 4 notes

Question 1

merchandise

Answer 1

products company buys or sells

Question 2

who earns income from products the company buys or sells

Answer 2

merchandiser

Question 3

wholesaler

Answer 3

buys from manufacturer and sells to retailer

Question 4

retailer

Answer 4

buys from manufacturer and sells to customer

Question 5

merchandiser net income formula

Answer 5

Revenue - (COGS + expenses)

Question 6

rev from selling merch is

Answer 6

sales

Question 7

expense of buying merch is

Answer 7

COGS

Question 8

gross profit formula

Answer 8

net sales - COGS

Question 9

inventory

Answer 9

products comapnies own and intend to sell

Question 10

inventory costs

Answer 10

cost to buy goods, ship to store, make ready for sale

Question 11

merchandiser operating cycle

Answer 11

1) purchases
2)merch inventory
3)credit sales
4) account receivables
5) cash collection

Question 12

what shortens operating cycle

Answer 12

cash sales

Question 13

do dept stores or companies have shorter operating cycle

Answer 13

companies

Question 14

merchandiser cost flow for single period

Answer 14

Beginning inventory + net purchases -> = merch available for sale -> ending inventory + COGS

Question 15

what are the two ways comanies account for inventory

Answer 15

perpetual and periodic

Question 16

perpetual account of inventory

Answer 16

records COGS for each sale (tech increases use of this)

Question 17

periodic account of inventory

Answer 17

records COGS at end of period

Question 18

what do purchase of goods on credit require

Answer 18

credit terms

Question 19

credit terms are

Answer 19

amount and timing of parments from buyer to seller

Question 20

credit period

Answer 20

amount of time allowed before full payment is due

Question 21

cash discount

Answer 21

granted by sellers to envourage buyers to pay earlier

Question 22

buyer views cash discounts as

Answer 22

purchase discount

Question 23

sellers views cash discount as

Answer 23

sales discount

Question 24

cross method records what

Answer 24

purchase at its full invoice amount

Question 25

when do you use gross method

Answer 25

1) it applies with rev recognition rules
2)used more in practice
3)easier and less costly to apply

Question 26

point of transfer, ie shipping is claled

Answer 26

FOB point

Question 27

supplementary records

Answer 27

info outside the usual ledger accounts

Question 28

what does perpetual acct system require

Answer 28

each sale transaction for mercher whether cash or credit have two entries
1)revenue
2) cost

Question 29

beginning inventory + net cost of purchases =

Answer 29

merch available for sale

Question 30

as inventory is sold, what is recorded

Answer 30

cost in COGS on income statement

Question 31

shrinkage

Answer 31

loss of inventory computed by comapring phsyical count of inventory with recorded amounts

Question 32

what is multiple step income statement

Answer 32

details net sales + expenses + reports sub totals for various items

Question 33

three main parts of multiple step income statement

Answer 33

1)gross profit
2)income from operation
3) net income

Question 34

nonoperating activities

Answer 34

consist of other expenses, revenue, losses and gains
-income from operations is labeled net income

Question 35

gross margin ratio

Answer 35

(net sales - COGS) / net sales