Chapter 5 Flashcards
An expense account that represents the cost of the actual goods sold.
COSTS OF GOODS SOLD
The difference between sales revenue and cost of goods sold
GROSS PROFIT OR GROSS MARGIN
Expresses the relationship of gross profit to sales (GROSS PROFIT / SALES)
GROSS PROFIT PERCENTAGE
Goods held for resale by a merchandiser
MERCHANDISE INVENTORY
One way merchandise inventory is managed: the merchandise account and cost of goods sold account are updated immediately when transactions occur
PERPETUAL INVENTORY SYSTEM
One way merchandise inventory is managed: the purchase of merchandise inventory is debited to a temporary account called Purchases. At the end of the accounting period, inventory is counted and the merchandise inventory account is updated and cost of goods sold is calculated.
PERIODIC INVENTORY SYSTEM
A type of adjustment for when merchandise is returned to a supplier or damaged in transit; this transaction is recorded as a credit to the Merchandise Inventory account and a debit to Account Payable.
PURCHASE RETURNS AND ALLOWANCES
Affects the purchase price of merchandise if payment is made within the time period specified in the supplier’s invoice.
PURCHASE DISCOUNTS
The normal selling price of a supplier’s goods to merchandisers.
LIST PRICE
What suppliers give to merchandisers that buy a large quantity of goods.
TRACE DISCOUNTS
Shipping terms that say the purchaser is responsible for transportation costs
FOB (FREE ON BOARD) SHIPPING POINT
Shipping terms that say the seller is responsible for transportation costs.
FOB DESTINATION POINT
When merchandise inventory that has been sold is returned to the merchandiser by the customer, this contra account is debited.
SALES RETURN AND ALLOWANCES
A contra revenue account records reductions in sales amounts when a customer pays within a certain time period
SALES DISCOUNTS
When a physical count of inventory is conducted and a discrepancy is found from theft or deterioration of merchandise inventory for example
SHRINKAGE
To record the purchase of merchandise inventory from a supplier on account:
DEBIT: MERCHANDISE INVENTORY
CREDIT: ACCOUNTS PAYABLE
To record purchase return and allowances:
DEBIT: ACCOUNTS PAYABLE
CREDIT: MERCHANDISE INVENTORY
To record purchase discounts if payment is made within the time period specified in the supplier’s invoice:
DEBIT: ACCOUNTS PAYABLE
CREDIT: MERCHANDISE INVENTORY & CASH
To record shipping costs from supplier to merchandiser:
DEBIT: MERCHANDISE INVENTORY
CREDIT: ACCOUNTS PAYABLE OR CASH
To record sale of merchandise inventory and cost of the sale:
DEBIT: ACCOUNTS RECEIVABLE OR CASH
CREDIT: SALES
AND
DEBIT: COST OF GOODS SOLD
CREDIT: MERCHANDISE INVENTORY
To record sales returns restored to inventory:
DEBIT: SALES RETURNS AND ALLOWANCES
CREDIT: ACCOUNTS RECEIVABLE OR CASH
AND
DEBIT: MERCHANDISE INVENTORY
CREDIT: COST OF GOODS SOLD
To record sales returns and allowances (where returns are not restored to inventory):
DEBIT: SALES RETURNS AND ALLOWANCES
CREDIT: ACCOUNTS RECEIVABLE OR CASH
To record sales discounts:
DEBIT: SALES DISCOUNTS
DEBIT: CASH
CREDIT: ACCOUNTS RECEIVABLE
To record adjustment for shrinkage at the end of the accounting period:
DEBIT: COST OF GOODS SOLD
CREDIT: MERCHANDISE INVENTORY
Describes the grouping of expenses based on their basic characteristics (what it is).
NATURE OF AN EXPENSE
Describes the grouping of expenses based on their purpose (what they relate to)
FUNCTION OF AN EXPENSE
The generally accepted accounting principle that requires financial statements to report all relevant information about the operations and financial position of the entity.
FULL DISCLOSURE PRINCIPLE
