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accounting > Chapter 5 > Flashcards

Chapter 5 Flashcards

1
Q

Retailers

A

Merchandising companies that purchase and sell dierectly to consumers

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2
Q

Wholesalers

A

Merchandising companies that sell to retaliers

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3
Q

Cost of goods sold

A

Total cost of merchandise sold during the period

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4
Q

Gross profit

A

Sales revenue - Costs of goods sold

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5
Q

Net income

A

Gross profit - operating expenses

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6
Q

Perpetual inventory system

A

An inventory system in which a company maintains the cost of each inventory item and records continuously show the inventory that should be on hand

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7
Q

Periodic inventory system

A

An invnentory system when a company does not maintain detalied records of goods on hand and determines the cost of goods sold only at the end of an accounting period

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8
Q

Helpful hint: perpetual inv.

A

Under perpetual inventory systems, companies perform physical inventories

Done as a control to verify inventory levels, in order to detect theft or “shrinkage”

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9
Q

Morrow Snowboards, Inc.

A

Investors were scared because of accounting problems

To reduce concerns, they implemented a perceptual inventory system

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10
Q

Purchase invoice

A

Indicates the total purchase price and other relevant information

each purchase should have one

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11
Q

purchases for merchandise (under perpetual)

A

Recorded in the Inventory Account

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12
Q

FOB

A

free on board

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13
Q

FOB shipping point

A

The seller places the goods free on board the carrier

Buyer pays freight costs

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14
Q

FOB destination

A

Seller places good free on board to the buyer’s place of business

Seller plays the freight costs

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15
Q

When buyer pays freight charges, _____________

“FOB shipping point”

A

Inventory is increased

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16
Q

When seller incurrs the freight costs, _______________

A

They are an operating expense the seller

Increase in the “Freight-out” or “Delivery expense” accounts

*sellers often increase invoice price to cover

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17
Q

Purchase return

A

A return of goods from the buyer to the seller for cash or credit

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18
Q

Purchase allowance

A

A deduction made to the selling price of merchandise, granted by the seller so that the buyer will keep the merchandise

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19
Q

purchase discount

A

A cash discount claimed by a buyer for prompt payment of a balance due

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20
Q

credit terms

A

specify the amount of the cash discount and time period during which it is offered

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21
Q

discount period

A

between the invoic date and the payment

22
Q

meaning of net in “net 30”

A

The remaining amount due after subtracting any returns and allowances and partial payments

23
Q

Sales invoice

A

A documentthat provides support for each sale

24
Q

Cash register tapes

A

Provide evidence of cash sales

25
Q

Business document

A

Provides written evidence of the sale

26
Q

Ethics note: General Electric

A

Try to improve quality of financial reporting

Provides more detail on revenue and operating profits

27
Q

If the seller is granted an allowance, the company journals it as ________________________________

A

Debit sales returns and Allowances

Credit Accounts Receievable

*FOR THE AMOUNT OF ALLOWANCE*

28
Q

Sales Returns and Allowances Account

A

Contra revenue account to Sales Revenue

Normal balance = debit

29
Q

Sales discount account

A

Given by seller for a prompt payment of balance due

Contra revenue acocunt to sales revenue

Normal balance = debit

30
Q

Single step income statement

A

Includes revenues and expenses

*company does not realize profit or income until total revenues exceed total expenses

*simple and easy to read

31
Q

Multi-step income statement components

A

Gross profit

Income from operations

Net income

32
Q

Gross profit

A

Net sales - cost of goods sold

33
Q

Income from operations

A

Gross profit - operating expenses

34
Q

International note: IASB and FASB

A

Working to evaluate format of financial statements

Income statement format that better reflects how businesses are run

35
Q

Gross profit represents ________________

A

Merchandising profit

Comparrisons with past gross profit indicate the dffictiveness of a company’s purchasing and pricing policies

36
Q

Nonoperating activities

A

Consists of various revenues and expenses and gains and losses that are unreleated to the company’s main line of operations

under “Income from operations”

37
Q

Ethics note: ConAgra

A

recorded a nonrecurring gain for $186 million from the sale of Pilgrim’s Pride stock to help meet an earnings projection for the quarter

38
Q

Periodic system equation

A

Beginning inventory

+

Cost of Goods purchased

= Cost of Goods available for sale

  • ending inventory

= Cost of goods sold

39
Q

Gross profit rate =

A

Gross profit

Net sales

40
Q

Profit Margin Ratio

A

Net income

Net Sales

41
Q

What does the profit margin ratio measure?

A

Measures the extent by which selling price covers all expenses

42
Q

3.4% profit margin

A

Company generates 3.3 cents of profit on each dollar of sales

43
Q

Quality of earnings ratio =

A

Net Cash provided by operating activities

Net income

44
Q

A number significantly greater than one for quality of earnings ratio

A

suggests a company is using conservative accounting, delay the recognition of income

45
Q

A number significantly less than one quality of earnigs ratio

A

Comapny is using agressive accounting in order to accelerate income recognition

46
Q

Purchases of merchandise in a periodic system

A

Under Purchases account rather than inventory account

47
Q

Freight-in

A

Temporary account whose normal balance is debit

*a part of cost of goods purchaed*

48
Q

Purchase Returns and Allowances

A

A temporary account

Normal balance = credit

49
Q

Purchase Discounts

A

Temporary account

Normal balance = credit

50
Q
A

accounting (31 decks)

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