Chapter 5 Flashcards
How do merchandising businesses differ from service businesses?
Merchandising businesses buy and sell goods, while service businesses provide services without transferring ownership of goods.
What is cost of goods sold (COGS)?
COGS represents the direct costs attributable to the production of goods sold by a company.
What are the two types of inventory systems?
The two types are the periodic inventory system and the perpetual inventory system.
How is COGS calculated using the periodic system?
COGS = Beginning Inventory + Purchases - Ending Inventory.
What is a purchase discount?
A purchase discount is a reduction in the price of goods purchased, often offered for early payment.
What is the effect of sales returns and allowances on net sales?
Sales returns and allowances reduce net sales, which is calculated as total sales minus returns and allowances.
What is the difference between FOB shipping point and FOB destination?
FOB shipping point means ownership transfers when goods are shipped; FOB destination means ownership transfers when goods are delivered.
How are freight costs classified in accounting?
Freight costs can be classified as freight-in (included in inventory) or freight-out (treated as an expense).
What is a sales invoice?
A sales invoice is a document issued by the seller to the buyer, indicating the products sold and the amount due.
What is the importance of inventory valuation?
Inventory valuation affects COGS, profitability, and tax liabilities, making accurate assessment crucial for financial reporting.
