Chapter 5

Question 1

A business that sells merchandise, or goods to customers

Answer 1

Merchandiser

Question 2

An asset account for the merchandise that a business sells to a customer

Answer 2

The merchandise Inventory

Question 3

A type of merchandiser who bus goods from a manufacturers and then sells them to retailers

Answer 3

Wholesaler

Question 4

A type of merchandiser who buys merchandise either from a manufacturer or a wholesaler and then sells those goods to consumers

Answer 4

Retailer

Question 5

What are the 3 steps to a merchandisers operating cycle

Answer 5

1. Purchase inventory from a vendor
2. Sell inventory to a customer
3. Collect cash from the customer

Question 6

The individual or business from whom a company purchases goods

Answer 6

Vendor

Question 7

The cost of the merchandise inventory that the business has sold to customers

Answer 7

Cost of goods sold

Question 8

What is gross margin and what is the formula

Answer 8

The extra amount the company receives from the customer over what the company paid to the vendor. Net sales minus cost of goods sold

Question 9

Expenses, other than Cost of Goods Sold, that are incurred in the entity’s major ongoing operations

Answer 9

Operating expenses

Question 10

What are the two main types of inventory accounting systems that are used.

Answer 10

1. Periodic inventory system
2. Perpetual inventory system

Question 11

A seller’s request for payment from the purchaser

Answer 11

invoice

Question 12

A situation in which sellers allow purchasers to return merchandise that is deflective, damaged, or otherwise unsuitable. Transaction between suppliers and merchandisers

Answer 12

Purchase return

Question 13

An amount granted to the purchaser as an incentive to keep goods that are not as ordered

Answer 13

Purchase allowance

Question 14

A discount that businesses offer to purchasers as an incentive for early payment

Answer 14

Purchase discount

Question 15

The payment terms of purchase or sale as stated on the invoice

Answer 15

Credit terms

Question 16

When the buyer takes ownership to the goods when the goods leave the sellers place of business and pays freight

Answer 16

FOB Shipping point

Question 17

When buyer takes ownership to the goods at the delivery destination point and seller pays freight

Answer 17

FOB destination

Question 18

Transportation cost to ship goods to the purchaser’s warehouse: therefore it is freight on purchased goods

Answer 18

Freight in

Question 19

Transportation cost to ship goods out of the sellers warehouse. Freight on goods sold

Answer 19

Freight out

Question 20

The amount a merchandiser earns from selling its inventory.

Answer 20

Sales Revenue

Question 21

Reduction in the amount of revenue earned on sales for early payment

Answer 21

Sales discount

Question 22

What does a discount of 3/10 n/30 mean

Answer 22

A discount of 3 percent if paid in 10 days, payment in full due in 30 days

Question 23

Decreases in the seller’s receivable from a customer’s return of merchandise or from g the customer an allowance from the amount owed to the seller

Answer 23

Sales returns and allowances

Question 24

A reduction in the amount owed by a customer due to the return of merchandise

Answer 24

Sales return

Question 25

A reduction in the amount owed by a customer that does not involve the return of merchandise inventory

Answer 25

Sales allowance

Question 26

The loss of inventory that occurs because of theft and damage

Answer 26

inventory shrinkage

Question 27

Four steps for closing accounts of merchandiser

Answer 27

1. Make revenue accounts equal 0
2. Make expense accounts equal 0
3. Make the income summary equal 0 via retained earnings
4. Make dividends equal 0

Question 28

The amount a company has earned on sales after returns, allowances, and discounts have been taken out. State formula

Answer 28

Net Sales Revenue
net sales = sales revenue - sales returns - sales discounts

Question 29

Income statement format that contains subtotals to highlight significant relationships

Answer 29

Multi-step income statement

Question 30

Operating expenses related to marketing and selling the company’s goods and services

Answer 30

selling expense

Question 31

Operating expenses incurred that are not related to marketing the company’s goods and services

Answer 31

administrative expenses

Question 32

Measures the results of the entity’s major ongoing activities. State the formula

Answer 32

Operating Income

Question 33

Revenues or expenses that are outside the normal day to day operations

Answer 33

other income and expenses

Question 34

Expense incurred by a corporation related to taxes

Answer 34

income tax expenses

Question 35

How do you calculate gross profit percentage

Answer 35

Gross profit/net sales revenue