Chapter 5 Flashcards
Merchandiser
earns profit by buying and selling merchandise
What is Merchandise
Products, (called goods), that a company acquires for the purpose of reselling them to customers
What is COGS
Cost of Goods sold - is the cost of merchandise sold to customers during a period; also commonly referred to as cost of sales
Wholesaler
a company that buys products from manufacturers or other wholesalers and sells them to retailers or other wholesalers
retail
an intermediary that buys products from manufacturers or wholesalers and sells them to consumers
net sales
calculated gross sales -(subtract) sales discounts - sales returns - allowances
calculating profit for service company
revenues minus operating expenses = profit
calculating profit for merchandiser company
net sales minus COGS = gross profit minus operating expenses = profit
gross profit also called gross margin
the difference between net sales and COGS ( net sales minus COGS)
products that a company owns for the purpose of selling them to customers
merchandise inventory
operating cycle of a merchandiser
cash - purchases - merchandise inventory - cash collecting
cycle of credit sales
cash - purchases - merchandise inventory - credit sales - accounts receivable - cash collection
beginning inventory
merchandise not sold last accounting period
Ending inventory
merchandise not sold this accounting period
Net cost of purchases
merchandise purchased this accounting period
What are the two types or accounting systems
Perpetual Inventory System and Periodic Inventory System
What is Perpetual Inventory System?
a method of accounting that maintains continuous records of the cost of inventory on hand and the cost of goods sold
what happens when a sale is made in perpetual inventory system
the inventory account is debited for the cost of each purchase and a corresponding accounts payable account is credited as items are received from the supplier
- the sale to the customer is recorded with a debit to accounts receivable and a credit to sales
- the cost of the inventory is recorded as a debit to COGS and the item is removed from the inventory account by crediting the inventory account
what is periodic inventory system
a method of accounting that records the cost of inventory purchased by does not track the quantity on hand or sold to customers the records are updated at the end of each period to reflect the results of physical counts of the items on hand
how to determine end inventory and cost of goods sold
company will take a physical count of inventory this will determine the dollar value of the asset inventory on the balance sheet at a period end as well as the COGS on the income statement
MI + purchases - ending MI = COGS
MI
Merchandise Inventory
inventory losses that occur as a result of theft or deterioration
called shrinkage
nature of an expense
a method of classifying an expense based on its basic characteristics or what it is
what is an example of identifying based off of nature of an expense
expenses are identified on the income statement as a depreciation, rent, property tax, and salaries the nature of the expense is being identified
what is function of an expense
describes the grouping of expenses based on their purpose or what they relate to when expenses are grouped by function additional info must be discloses to show nature of expenses within each group
whats an example of function grouping
income statement that shows COGS selling expenses and general and administrative expenses
what is the full disclosure principle
requires financial statements to report all relevant info about the operations and financial positions of the entity
Info that is relevant but not included in the body of the statements is provided in notes to financial statements.
Notes to financial statements
and integral part of financial statements that provides relevant info about the operations and financial position of the entity in addition to that contained in the financial statements
what are the two general types of multiple step income statements
classifies multiple step format and multiple step format they can be used in both inventory system
classified multiple step income statement
and income statement format that shows intermediate totals between sales and profit and detailed computations of net sales and COGS and is used primarily for internal reporting
selling ecpenses
the expenses of promoting sales by displaying and advertising the merchandise making sales and delivering goods to customers
general and administrative expenses
support the overall operations of a company and include expenses related to accounting, HR and financial management
general and administrative expenses provides detail on what?
includes office salaries, office supplies, rent expense
multiple step format
used for external reports the functional categories of selling expenses and general and administrative expenses are not included on a multiple step income statement ; operating expenses are listed by nature only
single step income statement
another format of external reporting
shows items based on their function only
includes: COGS and an operating expense and shows only one subtotal for total expenses
gross profit margin calculated as
net sales minus COGS divided by net sales = gross profit margin
markup percentage
is the average increase in selling price of a product over the cost
example: is product cost $10 and retail in $15 your markup is $5 or 5/10 = 50%
selling price calculated
selling price = cost x (1+markup %) = 10 x (1+ 0.50) = $15
mark up percentage caculations
markup percentage = selling price minus cost divided by cost
required selling price
selling price = cost divided by ( 1- target margin %)
What is merchandise inventory
Products a company owns for resale to customers
How do you say 2/10 n/30
2% 10 net 30 this means 2% discount for 10 days full amount due after 30 days
