Chapter 5 Flashcards
Gross profit (gross margin) equation
Net sales - Cost of goods sold
Perpetual inventory system
Records cost of goods sold at the time of each sale
Periodic inventory system
Records cost of goods sold at the end of the period
Goods available for sale equation
Beginning inventory + Net purchases
Cost of goods sold equation
Beginning inventory + Net purchases - Ending inventory
Net income of merchandiser equation
Net sales - Cost of goods sold - Expenses (general)
Cash purchase without cash discounts
Merchandise Inventory DEBIT
Cash CREDIT
Purchase on credit (Z-Mart makes purchase of $500 on credit)
Merchandise Inventory DEBIT
Accounts Payable CREDIT
Credit payment received within discount period
(Z-Mart pays the credit amount on or before discount period)
Accounts Payable DEBIT
Merchandise Inventory CREDIT (the discount)
Cash CREDIT
Buyer makes credit payment made after discount period (Z-Mart makes credit payment after discount period)
Accounts Payable DEBIT
CASH CREDIT
Purchase allowances (Z-Mart (buyer) agrees to a $30 allowance from Trek for defective merchandise paid on credit)
Accounts Payable DEBIT
Merchandise Inventory CREDIT
Purchase returns (if the Z-Mart initially put it on credit)
Accounts Payable DEBIT
Merchandise Inventory CREDIT
Free on board point
Point of transfer
FOB shipping point (transportation-in or freight-in)
Merchandise Inventory DEBIT
Cash CREDIT
**Buyer accepts ownership and pays for shipping when the goods depart
FOB destination (transportation-out or freight-out)
Delivery Expense DEBIT
CASH CREDIT
**Buyer accepts ownership once it arrives at the destination point, seller pays shipping charges
Each sales transaction for a merchandiser has 2 entries:
one for revenue and one for cost
Inflow of assets (Z-Mart sold $100 of merchandise, revenue side)
Accounts Receivable DEBIT
Sales CREDIT
Outflow of assets (merchandise sold, cost side)
Cost of Goods Sold DEBIT
Merchandise Inventory CREDIT
Sales on credit with cash discount (Z-Mart makes credit payment within discount)
Cash DEBIT
Sales Discounts DEBIT
Accounts Receivable CREDIT
Buyer returns goods previously purchased, the seller must: (revenue side)
Sales Returns and Allowances DEBIT
Cash CREDIT
Buyer returns goods previously purchased, the seller must: (cost side)
Merchandise inventory DEBIT
Cost of Goods Sold CREDIT
Buyer granted allowances (you provide an allowance on a previous sale)
Sales Return and Allowances DEBIT
Cash or Accounts Receivable CREDIT
Inventory shrinkage
Cost of Goods Sold DEBIT
Merchandise Inventory CREDIT
Closing temporary credit accounts for merchandise
Sales
Closing temporary debit accounts for merchandise
Sales Discounts
Sales Returns and Allowances
Cost of Goods Sold
**Expense accounts
Multiple-step income statement
- Gross Profit
- Income from operations = expenses (selling expenses & general and administrative expenses)
- Net Income
Selling expenses
Includes advertising of merchandise, store supplies and rent, and delivery of goods to customers
General and administrative expenses
Includes office salaries, office equipment, rent and office supplies
Gross margin ratio equation
Gross profit (net sales - cost of goods sold) / net sales
**For every dollar of revenue made, the ratio percentage is retained for profit and the rest is attributed to pay for costs of goods
Gross method
Records purchases at its gross (full) invoice amount
Shrinkage
Loss of inventory by comparing a physical count of inventory with recorded amounts
Acid-test ratio (quick ratio) equation
- Includes quick assets (cash, short term investments, and current receivables) to cover liabilities
Cash + short-term investments + current receivables / current liabilities
***LESS THEN 1.0 raises liquidity
