Chapter 5 Flashcards
Gross profit equals
Sales - cost of goods sold
Net income equals
Gross profit - operating expenses
Perpetual Inventory System
A detailed inventory system in which a company maintains the cost of each inventory item and indicates the amount of inventory on hand at all times.
Periodic Inventory System
Inventory system in which companies do not maintain detailed records or goods on hand throughout the period and determines the cost of goods sold only at the need of the accounting period.
True or False
The primary source of revenue for a merchandising company results from performing services for customers.
False.
The primary source of revenue for a service company results from performing services for customers.
True or False
The operating cycle of a service company is usually shorter than that of a merchandising company.
True
True or False
Sales revenue less cost of goods sold equals gross profit
True
True or False
Ending inventory plus the cost of goods purchase equals cost of goods available for sale.
False.
Beginning inventory plus the cost of goods purchase equals cost of goods available for sale.
When a sale on account occurs, the seller debits…
Accounts Receivable
When cash discounts are taken by customers, the seller debits…
Sales Discount
When customer returns goods, the seller debits…
Merchandise Inventory
Contra revenue account
An account that is offset against a revenue account on the income statement.
Comprehensive Income
An income measure that includes gains and losses that are excluded from determination of net income.
Contra revenue account
An account that is to offset against a revenue account on the income statement.
Gross Profit
Net sales - cost of goods sold
