Chapter 5 Flashcards
What is the business cycle?
The process by which a company spends cash, generates revenues, and receives cash either at the time of sale or later by collecting accounts receivable.
What is the cost of goods sold (COGS)?
The expense recorded when merchandise inventory is sold.
What are the two systems for tracking merchandise inventory?
Perpetual Inventory System – Updates inventory continuously as transactions occur.
Periodic Inventory System – Updates inventory at the end of an accounting period.
What is a subsidiary ledger?
A detailed ledger that contains individual accounts grouped by characteristics, with totals summarized in the general ledger.
What is a controlling account?
An account in the general ledger that summarizes subsidiary ledger balances.
What does FOB shipping point mean?
The buyer pays the shipping costs and takes ownership once goods leave the seller’s location.
What does FOB destination mean?
The seller pays shipping costs and owns the goods until they reach the buyer.
What does 2/10, n/30 mean?
A 2% discount is given if payment is made within 10 days; otherwise, full payment is due within 30 days.
What is a sales discount?
A discount given by the seller to encourage early payment by customers.
What is a purchase discount?
A discount offered by a seller to a buyer for early payment.
What is a cash refund?
Money returned to the buyer for defective or unwanted merchandise.
What is a customer refund payable?
A liability account used by sellers when they expect to grant refunds to buyers.
What is a credit memorandum?
A document issued by the seller reducing the amount owed by a customer due to returns or allowances.
What is estimated returns inventory?
An asset account that represents the expected cost of merchandise that will be returned.
What is inventory shrinkage?
The loss of inventory due to theft, damage, or errors, detected when physical inventory counts are lower than recorded amounts.
What are selling expenses?
Expenses related to selling merchandise, such as advertising and sales salaries.
What are administrative expenses?
Expenses related to managing the business, such as office salaries and supplies.
What are other revenue and expenses?
Income or expenses not related to main business operations, such as interest income or losses from asset sales.
