Chapter 5 Flashcards
What is the perpetual inventory system?
When a company uses the perpetual inventory system, it means that they are perpetually keeping track of all the inventory on hand and the inventory sold.
What is inventory? What account does it belong to?
Inventory are goods that were bought with intent to be re-sold for a profit. Inventory belongs to a current asset account.
When inventory is sold, what does it become? What financial sheet does it go on? Explain.
When inventory is sold, it becomes part of COGS. This is an expense account on the income statement. (Because you paid for it in order to make a profit.)
With the perpetual inventory system, when is the inventory account updated?
With the perpetual inventory system the inventory account is updated every single time there is a change in inventory. (goods sold, returned or bought from a supplier.)
What does each number mean in: 2/10,n30
The “2” means that the purchaser gets two percent off if it is payed off within 10 days (that’s the 10) otherwise you get no discount but you have to pay it off within 30 days.
What does freight in mean?
What are the steps in the multi step income statement?
The five steps in the multi step income statement are: 1) Net sales 2) Gross profit 3) Profit from operations 4) Non operating activities (Other revenues minus other expenses.) 5) Profit.
What is the difference between gross profit or net profit?
What are sales recorded at?
Sales are recorded at the sale price
What is freight out?
Freight out is when the company that you are buying from decides to pay for the cost of shipping for you.
What kind of account is sales returns and allowances?
Sales returns and allowances are a contra asset account.
when you get a sales return or make an allowance, do you debit it or credit it and why?
When you receive a sales return or make an allowance it is a debit account because we use this account to track the sales returns and how accurate our allowances are.
What can a sales discount also be called, why?
A sales discount can also be called a contra sales account. It’s normal balance is a debit. It is called a contra sales account to track the sales discounts.
Name two temporary accounts.
Some temporary accounts include sales discount and sales returns and allowances.
How does the account “sales” effect owner’s equity?
The account labeled sales increases owner’s equity, just as the revenue account increases owners equity.
