chapter 4 notes Flashcards
merchandise
products company buys or sells
who earns income from products the company buys or sells
merchandiser
wholesaler
buys from manufacturer and sells to retailer
retailer
buys from manufacturer and sells to customer
merchandiser net income formula
Revenue - (COGS + expenses)
rev from selling merch is
sales
expense of buying merch is
COGS
gross profit formula
net sales - COGS
inventory
products comapnies own and intend to sell
inventory costs
cost to buy goods, ship to store, make ready for sale
merchandiser operating cycle
1) purchases
2)merch inventory
3)credit sales
4) account receivables
5) cash collection
what shortens operating cycle
cash sales
do dept stores or companies have shorter operating cycle
companies
merchandiser cost flow for single period
Beginning inventory + net purchases -> = merch available for sale -> ending inventory + COGS
what are the two ways comanies account for inventory
perpetual and periodic
perpetual account of inventory
records COGS for each sale (tech increases use of this)
periodic account of inventory
records COGS at end of period
what do purchase of goods on credit require
credit terms
credit terms are
amount and timing of parments from buyer to seller
credit period
amount of time allowed before full payment is due
cash discount
granted by sellers to envourage buyers to pay earlier
buyer views cash discounts as
purchase discount
sellers views cash discount as
sales discount
cross method records what
purchase at its full invoice amount
when do you use gross method
1) it applies with rev recognition rules
2)used more in practice
3)easier and less costly to apply
point of transfer, ie shipping is claled
FOB point
supplementary records
info outside the usual ledger accounts
what does perpetual acct system require
each sale transaction for mercher whether cash or credit have two entries
1)revenue
2) cost
beginning inventory + net cost of purchases =
merch available for sale
as inventory is sold, what is recorded
cost in COGS on income statement
shrinkage
loss of inventory computed by comapring phsyical count of inventory with recorded amounts
what is multiple step income statement
details net sales + expenses + reports sub totals for various items
three main parts of multiple step income statement
1)gross profit
2)income from operation
3) net income
nonoperating activities
consist of other expenses, revenue, losses and gains
-income from operations is labeled net income
gross margin ratio
(net sales - COGS) / net sales
