Chapter 5 Vocabulary

Question 1

account form

Answer 1

The form of balance sheet that resembles the basic format of the accounting equation; with assets on the left side and Liabilities and Stockholder’s Equity sections on the right side.

Question 2

account form

Answer 2

The subsidiary ledger containing the individual accounts with suppliers (creditors).

Question 3

accounts receivable subsidiary ledger

Answer 3

The subsidiary ledger containing the individual accounts with customers.

Question 4

administrative expense

Answer 4

An analysis and updating of the accounts when financial statements are prepared.

Question 5

allowances

Answer 5

The method of accounting for uncollectible accounts that provides an expense for uncollectible receivables in advance of their writeoff.

Question 6

controlling account

Answer 6

The account in the general ledger that summarizes the balances of the accounts in a subsidiary ledger.

Question 7

cost of merchandise sold

Answer 7

The cost that is reported as an expense when merchandise is sold.

Question 8

credit memorandum

Answer 8

Amount entered on the right side of an account.

Question 9

credit period

Answer 9

The amount of time the buyer is allowed in which to pay the seller.

Question 10

credit terms

Answer 10

Terms for payment on account by the buyer to the seller.

Question 11

customer discounts

Answer 11

A variety of discounts offered by the seller as incentive for the customer to act in a way benefiting the seller.

Question 12

customer returns and allowances

Answer 12

Sometimes called sales returns and allowances; these are returns to the seller by the customer or reductions from the initial selling price due to defective or damaged merchandise or goods that did not meet the customer’s expectations.

Question 13

debit memorandum

Answer 13

Amount entered on the left side of an account.

Question 14

destination

Answer 14

The portion of the cost of a fixed asset that is recorded as an expense each year of its useful life.

Question 15

general ledger

Answer 15

The primary ledger; when used in conjunction with subsidiary ledgers; that contains all of the balance sheet and income statement accounts.

Question 16

gross profit

Answer 16

Sales minus the cost of merchandise sold.

Question 17

income from operations

Answer 17

Cumulative preferred stock dividends that have not been paid in prior years are said to be in arrears.

Question 18

inventory shrinkage

Answer 18

A company’s ability to manage its inventory effectively.

Question 19

inventory subsidiary ledger

Answer 19

A ledger containing individual accounts with a common characteristic.

Question 20

invoice

Answer 20

The bill that the seller sends to the buyer.

Question 21

ledger

Answer 21

A group of accounts for a business.

Question 22

merchandise inventory

Answer 22

Merchandise on hand (not sold) at the end of an accounting period.

Question 23

multiple-step income

Answer 23

A method that allocated factory overhead to product by using factory overhead rates for each production department.

Question 24

operating cycle

Answer 24

The process by which a company spends cash; generates revenues; and receives cash either at the time the revenues are generated or later by collecting an accounts receivable.

Question 25

other expense

Answer 25

Expenses that cannot be traced directly to operations.

Question 26

other income

Answer 26

Revenue from sources other than the primary operating activity of a business.

Question 27

periodic inventory system

Answer 27

The inventory system in which the inventory records do not show the amount available for sale or sold during the period.

Question 28

perpetual inventory system

Answer 28

The inventory system in which each purchase and sale of merchandise is recorded in an inventory account.

Question 29

physical inventory

Answer 29

A detailed listing of merchandise on hand.

Question 30

purchases discounts

Answer 30

Discounts taken by the buyer for early payment of an invoice.

Question 31

ratio of sales to assets

Answer 31

Ratio that measures how effectively a company uses its assets; computed as net sales divided by average total assets.

Question 32

report form

Answer 32

The form of balance sheet with the Liabilities and Owner’s Equity sections presented below the Assets section.

Question 33

sales

Answer 33

The total amount charged customers for merchandise sold; including cash sales and sales on account.

Question 34

sales discounts

Answer 34

From the seller’s perspective; discounts that a seller may offer the buyer for early payment.

Question 35

selling expenses

Answer 35

Expenses that are incurred directly in the selling of merchandise.

Question 36

shortage

Answer 36

An overhead activity that consists of changing tooling in machines in preparation for making a new product.

Question 37

single-step income statement

Answer 37

A form of income statement in which the total of all expenses is deducted from the total of all revenues.

Question 38

special journals

Answer 38

Journals designed to be used for recording a single type of transaction.

Question 39

statement

Answer 39

Performance goals; often relating to how much a product should cost.

Question 40

subsidiary ledger

Answer 40

A ledger containing individual accounts with a common characteristic.

Question 41

trade discounts

Answer 41

Discounts from the list prices in published catalogs or special discounts offered to certain classes of buyers.