Chapter 5

Question 1

a business that sells merchandise, or goods, to customers.

Answer 1

merchandiser

Question 2

buys goods from a manufacturer and sells them to retailers

Answer 2

wholesaler

Question 3

buys merchandise from manufacturers or a wholesaler and then sells the goods to consumers.

Answer 3

retailer

Question 4

gross profit

Answer 4

Net Sales Revenue - Cost of Goods Sold

Question 5

which are expenses other than Cost of Goods Sold.

Answer 5

operating expenses

Question 6

requires a physical count of inventory to determine inventory on hand.

Answer 6

periodic inventory system

Question 7

keeps a running computerized record of merchandise inventory

Answer 7

perpetual inventory stystem

Question 8

the seller’s request for payment from the purchaser.

Answer 8

invoice

Question 9

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

Answer 9

credit terms

Question 10

means the buyer takes ownership (title) to the goods after the goods leave the seller’s place of business (shipping point).

Answer 10

FOB shipping point

The buyer (owner of the goods while in transit) usually pays the freight.

Question 11

means the buyer takes ownership (title) to the goods at the delivery destination point.

Answer 11

FOB destination

The seller (owner of the goods while in transit) usually pays the freight.

Question 12

____ is the transportation cost to ship goods into the purchaser’s warehouse; thus, it is freight on purchased goods.

Answer 12

freight in

Question 13

____ is the transportation cost to ship goods out of the seller’s warehouse and to the customer; thus, it is freight on goods sold to a customer.

Answer 13

freight out

Question 14

___ is an asset account used to estimate the cost of merchandise inventory a company will receive in returns.

Answer 14

estimated returns inventoy

Question 15

____ is a liability account used to estimate the amount of refunds that will be paid to customers in the future

Answer 15

refunds payable

Question 16

____ occurs when the seller reduces the amount owed by a customer, but the customer does not return of merchandise inventory

Answer 16

sales allowance

Question 17

___ is loss of inventory occurring from theft, damage, and errors.

Answer 17

inventory shrinkage

Question 18

____ groups all revenues together and then lists and deducts all expenses together without calculating any subtotals.

Answer 18

single step income statement

Question 19

___contains subtotals to highlight significant relationships.

Answer 19

multi step income statement

In addition to net income, it reports gross profit and operating income.

Question 20

how to find operating income:

Answer 20

gross profit - operating expenses

Question 21

___ measures the profitability of each sales dollar above the cost of goods sold.

Answer 21

gross profit percentage

Question 22

gross profit percentage formula:

Answer 22

gross profit percentage = gross profit / net sales revenue