Chapter 5 - Merchandising Operations and the Multiple-Step Income Statement

Question 1

An income measure that includes gains and losses that are excluded from the determination of net income.

Answer 1

Comprehensive income

Question 2

A statement that presents items that are not included in the determination of net income, referred to as other comprehensive income.

Answer 2

Comprehensive income statement

Question 3

An account that is offset against a revenue account on the income statement.

Answer 3

Contra revenue account

Question 4

The total cost of merchandise sold during the period.

Answer 4

Cost of goods sold

Question 5

Freight terms indicating that ownership of goods remains with the seller until the goods reach the buyer.

Answer 5

FOB destination

Question 6

Freight terms indicating that ownership of goods passes to the buyer when the public carrier accepts the goods from the seller.

Answer 6

FOB shipping point

Question 7

The excess of net sales over the cost of goods sold.

Answer 7

Gross profit

Question 8

Gross profit expressed as a percentage by dividing the amount of gross profit by net sales.

Answer 8

Gross profit rate

Question 9

The product of a company’s income before income taxes and its corporate income tax rate.

Answer 9

Income tax expense

Question 10

Sales less sales returns and allowances and sales discounts.

Answer 10

Net sales

Question 11

An inventory system in which a company does not maintain detailed records of goods on hand throughout the period and determines the cost of goods sold only at the end of an accounting period.

Answer 11

Periodic inventory system

Question 12

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

Answer 12

Perpetual inventory system

Question 13

Measures the percentage of each dollar of sales that results in net income, computed by dividing net income by net sales.

Answer 13

Profit margin

Question 14

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

Answer 14

Purchase allowance

Question 15

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

Answer 15

Purchase discount

Question 16

A document that provides support for each purchase.

Answer 16

Purchase invoice

Question 17

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

Answer 17

Purchase return

Question 18

A measure used to indicate the extent to which a company’s earnings provide a full and transparent depiction of its performance; computed as net cash provided by operating activities divided by net income.

Answer 18

Quality of earnings ratio

Question 19

A reduction given by a seller for prompt payment of a credit sale.

Answer 19

Sales discount

Question 20

A document that provides support for each sale.

Answer 20

Sales invoice

Question 21

Transactions in which the seller with reaccepts goods back from a purchaser (a return) or grants a reduction in the purchase price (an allowance) so that the buyer will keep the goods.

Answer 21

Sales returns and allowances

Question 22

Primary source of revenue for a merchandising company.

Answer 22

Sales revenue