chapter 5 Flashcards
what are merchandising companies?
companies that buy and sell inventory (Walmart)
what are retailers?
companies that sell to consumers
what are wholesalers?
companies that sell to retailers
what are manufacturers?
companies that produce goods for sale to wholesalers or to others
when companies mostly do B2B sales, how are most goods paid for?
in credit
what are the 2 types of inventory systems?
perpetual
periodic
what is an operating cycle?
the period that elapses from when cash is spent to buy inventory or provide a service to the time when cash is collected from customers
is the operating cycle longer for a merchandising company or a service company?
merchandising company, merchandise must be purchased, then it is held in stores or warehouses then finally sold to customers
what kind of account is inventory?
it is a current asset
once inventory is sold, what does it get accounted to?
it becomes cost of goods sold
how do you find goods available for sale?
beginning inventory + new purchases of inventory
how do you find cost of goods sold?
goods available for sale- ending inventory
what is the perpetual inventory system?
detailed records are kept for the cost of each product purchased and sold, and these records are updated perpetually for purchases and sales
how does the perpetual inventory system help management?
management knows the cost of goods sold and inventory balances at al times
how often is a physical count done of inventory done in a perpetual inventory system?
at least once a year to adjust perpetual records to actual
do all companies use a perpetual inventory system?
no, its not useful for all companies and some cannot afford it
what is periodic inventory system?
when detailed records of merchandise are not kept throughout the period
when is cost of goods sold determined in a periodic inventory system?
only determined at the end of the accounting period once inventory is counted, cost of goods available for sale and cost of goods sold
does the periodic inventory system require lots of labor and costs?
yes
how are purchases of merchandise recorded in perpetual system ?
in the inventory account
are GST and HST part of cost of goods sold?
no they are not, the company collects the taxes for the government and passes it to them
what is FOB destination and who pays for it?
when ownership of the goods does not pass from the seller to the buyer until the goods are received by the buyer and the seller pays for it and the shipping cost is considered an operating expense
what is FOB shipping point and who pays for it?
ownership of the goods passes from the seller to the buyer as soon as the goods are shipped, buyer pays the shipping cost and is considered cost of goods sold
under FOB destination, how does the ownership transfer of goods work?
ownership of the goods does not pass from the seller to the buyer until the goods are received by the buyer, destination point
what is a purchase discount?
it is something that is offered to encourage early payment of a balance due
2/10 n/30
get 2% discount if you pay within 10 days or full price within 30
what is shrinkage?
when there is a difference between the actual inventory count and the inventory records
when must inventory be adjusted?
when the actual inventory does not match the recorded inventory, and must be adjusted so that it reflects the actual cost of inventory on hand
are sales tax recorded as revenue?
no it is recorded as a liability
what is generally better for gross profit margin and what does it measure?
it measures the gross profit expressed as a percentage of sales and higher is generally better
what is better for profit margin and what does it measure?
measures the percentage of each dollar of sales that results in profit and higher is better
what are the 3 steps to calculate cost of goods sold?
calculate cost of goods purchased
determine ending inventory
calculate cost of goods sold
