Chapter 6 Flashcards
Cost of goods sold definition
The total cost of merchandise sold during the period
FOB destination definition
Freight terms indicating that the ownership of goods remains with the seller until the goods reach the buyer
FOB shipping point definition
Freight terms indicating that ownership of goods passes to the buyer when the public carrier accepts the goods from the seller
Gross profit definition
The excess of net sales over the costs of goods sold
Gross profit margin definition
Gross profit expressed as a percentage by dividing the amount of gross profit by net sales
Income tax expense definition
The product of a company’s net income before income taxes and its corporate income tax rate
Net sales definition
Sales less sales returns and allowances and sales discounts
Periodic Inventory System definition
An inventory system in which a company does not maintain detailed records of goods on hand throughout the period and determines the COGS only at the end of an accounting period
Perpetual Inventory System definition
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
Profit margin definition
Measures the percentage of each dollar of sales that results in net income, computed by dividing net income by net sales
Purchase allowance definition
A deduction made to the selling price of merchandise granted by the seller, so that the buyer will keep the merchandise
Purchase discount definition
A cash discount claimed by a buyer for prompt payment of a balance due
Purchase invoice definition
A document that provides support for each purchase
Purchase return defintion
A return of goods from the buyer to the seller for cash or credit
Sales discount definition
A reduction given by a seller for prompt payment of a credit sale
Sales Invoice defintion
A document that provides support for each sale
Sales returns and allowances defintion
Transactions in which the seller either accepts goods back from the purchaser (a return) or grants a reduction in the purchase price (allowance) so that they buyer will keep the goods
Sales revenue defintion
Primary source of revenue for a merchandising company
Describe merchandising companies
They buy and sell merchandise rather than perform services as their primary source of revenue
Retailers defintion
Merchandising companies that purchased and sell directly to consumers
Wholesalers defintion
Merchandising companies that sell to retailers
What are the two categories of expenses for a merchandising company?
- Cost of goods sold
2. Operating expenses
Which expense is directly related to the revenue recognized from the sale of goods?
Cost of goods sold
Which two line items are expense items that are unique to a merchandising company and are not used by a service company?
- Cost of goods sold
2. Gross profit
Formula to calculate Net Income
Sales revenue - COGS = Gross profit - Operating expenses = net income
