Chapter 5 Flashcards
What is the cost of goods sold?
The total cost of goods sold during the period.
Sales revenue - Cost of goods sold =?
Gross profit.
Describe the operating cycle of a service-based company and a merchandising-based company?
Merchandising:
Cash—> buy inventory —–> Sell inventory ——> accounts rec. —–> cash
What is a perpetual inventory system?
- maintain detailed records of the cost of each inventory purchase and sale.
- records continuously show the inventory that is on hand per item.
- COST OF GOODS SOLD IS DETERMINED EVERY SALE.
Gross profit - operating expenses= ?
Net income/ loss
What are the advantages of perpetual opposed to periodic?
*Perpetual is typically used for items that cost a lot per unit, and it is easier to control inventory this way.
What is the periodic system of accounting?
In perpetual inventory, the purchase invoice should support each ________ purchase.
credit purchase.
If something is an invoice you know the item was purchased on ________?
account.
What is FOB shipping point?
- what happens to the finances in these situations?
- The BUYER adds the freight costs to the inventory
( Freight- in)
What is FOB destination?
- what happens to the finances in these situations?
The freight costs are incurred by the seller and are registered as an OPERATING EXPENSE (freight-out)
For returns:
- Cash purchases are returned for ______?
- Credit purchases are returned for _____?
- Cash
- Credit
Assume Sauk Stereo returned goods costing 300$ to PW audio supply, What would the journal entry look like? (perspective of Sauk Stereo)
Account Payable: 300
Inventory: 300
The example: 2/10, n/30 equates to what?
These are credit terms indicating that if the amount due is paid within 10 days a 2% discount will be made.
OTHERWISE, the amount is due in 30 days.
What do the credit terms:
- ) 1/10 EOM
- ) n/10 EOM
- ) 1% discount if paid within the first 10 days of the next month.
- ) net amount due within the first 10 days of the next month.
Describe how to make a purchase discount entry given the following information: (buyer)
- 3500 purchase.
- 7/10. n/30
Account payable: 3500
Inventory: 70 (3500 x .7 = 70)
Cash: 3430
Describe how to make a purchase discount entry given the following information:
- 3500 purchase.
- Payment made on 30th day of month.
Account Payable: 3500
Cash: 3500
How do you record a sale in a perpetual inventory system?
#1 Accounts receivable or Cash: xx
Sales Revenue: xx
#2 Cost of Goods sold exp. xx
inventory: xx
What would be the entry for the return of inventory that was sold for $300 and purchased for 140?
#1 Sales and return allowance: 300
Account Receivable: 300
#2 Inventory: 140
Cost of Goods sold: 140
What would the journal entry look like on discount purchase for a seller? ( 3500) 2/10, n/30?
Cash: 3430
Sales discount: 70
Accts. Receivable: 3,500
What are the four most important components of a net income statement?
- ) gross profit
- ) Income after operational expense
- ) income before taxes.
- ) net income.
Describe the order of items listen on the multi-step income statement?
- ) Sales rev.
- ) (less) Sales Discount + Returns
- ———————————————————
- ——————————————————————–
* 3.) Net Sales:
- ——————————————————————-
- ——————————————————— - ) (Less): Cost of goods sold
- ———————————————————
- ———————————————————
* 5.) Gross Profit
- ———————————————————-
- ——————————————————— - ) (Less) Other operating expenses
- ———————————————————
- ———————————————————
* 7.) Income after operating expense
- ———————————————————
- ——————————————————— - ) Other rev’s/ gains
- ) (Less) other losses
- ———————————————————
- ———————————————————
* 10.) Income before taxes.
- ———————————————————
- ——————————————————— - ) (Less) Tax expense:
- ———————————————————-
- ———————————————————
* 12.) Net Income
What is the formula for Gross profit rate?
Gross Profit: Net Sales - Cost of goods sold / Net Sales
What is the formula for Profit margin?
Net income: sales rev - (sales discount + returns) / Net sales.
What is the quality of earnings ratio?
It provides proof that sales and purchases occurred.
