Chapter 5 Flashcards
cash discount
A reduction in invoice price offered to customers to encourage prompt payment of invoices.
cost of goods sold
The total cost attributed to units of inventory actually sold during a period.
credit memorandum
A seller-prepared document evidencing an approved return of merchandise for credit against an account.
debit memorandum
A purchaser-prepared document evidencing a return of merchandise to a seller.
F.O.B. destination
Free on Board destination; meaning the transfer of ownership of inventory will occur when the goods reach their destination and the seller will incur the freight charges.
F.O.B. shipping point
Free on Board shipping point; meaning the transfer of ownership of inventory will occur when the goods are shipped and the purchaser will incur the freight charges.
goods available for sale
A callculated amount corresponding to the beginning inventory plus net purchases; represents the total pool of inventory available during a period from which sales can occur.
gross method
A method of recording purchases of inventory at invoice price.
gross profit
A calculated amount corresponding to net sales minus cost of goods sold.
inventory
Goods held for resale to others.
invoice price
List price less any trade discounts.
list price
An established price determined by reference to a catalog or general price list; before any discounts.
multiple-step income statement
A complex income statement with sections that segregate cost of goods sold calculations and other components of income and expense; enables enhanced evaluations of data.
net method
A method of recording purchases of inventory at invoice price less available cash discounts.
operating expenses
General expense category for selling and administrative costs.
periodic inventory system
An inventory system that utilizes a Purchases account and does not update inventory with each sale; inventory is updated by physical count at the end of accounting periods.
perpetual inventory system
A “real-time” inventory system that updates inventory records with each purchase and sale.
purchase discounts
A cash discount available on purchases of merchandise on account; encourages prompt payment.
sales discounts
A cash discount offered to customers to encourage prompt payment of invoices.
single-step income statement
A simple income statement with a section for all revenues and another for all expenses; there is no direct association between specific revenue and expense components.
trade discount
A reduction from list price that is not entered in the accounting records; customarily offered in “setting” the invoice amount.