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