Chapter 5 Flashcards
A ratio used to assess a company’s ability to settle its current debts with its most liquid assets; defined as quick assets (cash, short-term investments, and current receivables) divided by current liabilities.
Acid-test ratio
Cost of inventory sold to customers during a period; also called cost of sales.
Cost of goods sold
Abbreviation for end of month; used to describe credit terms for credit transactions.
EOM
Abbreviation for free on board; the point when ownership of goods passes to the buyer; FOB shipping point (or factory) means the buyer pays shipping costs and accepts ownership of goods when the seller transfers goods to the carrier; FOB destination means the seller pays shipping costs and the buyer accepts ownership of goods at the buyer’s place of business.
FOB
Expenses that support the operating activities of a business.
General and administrative expenses
Net sales minus cost of goods sold
Gross margin or Gross profit
Gross margin (net sales minus cost of goods sold) divided by net sales
Gross margin ratio or gross profit ratio
Net sales minus cost of goods sold
Gross profit
Catalog (full) price of an item before any trade discount is deducted.
List price
Goods that a company owns and expects to sell to customers; also called merchandise or inventory.
Merchandise inventory
Income statement format that shows subtotals between sales and net income, categorizes expenses, and often reports the details of net sales and expenses.
Multiple-step income statement
Expenses of promoting sales, such as displaying and advertising merchandise, making sales, and delivering goods to customers.
Selling expenses
Inventory losses that occur as a result of theft or deterioration.
Shrinkage
Income statement format that subtracts total expenses, including cost of goods sold, from total revenues with no other subtotals.
Single-step income statement
Reduction from a list or catalog price that can vary for wholesalers, retailers, and consumers.
Trade discount
