Chapter 6 Financial Accounting Flashcards
Inventory
Items held by the company for re-sale
What financial statement does inventory go on?
Balance Sheet
How would you classify inventory?
Current Asset
In inventory items that are sold are called…
Cost of Good Solds
What is sales revenue based on?
Retail price of inventory
What are the cost of goods sold based on?
Cost of Inventory
Gross Profit
Sales revenue - Cost of Goods Sold
What is another name for Gross Profit?
Gross Margin
What does Gross Profit represent?
Markup on products
In Gross Profit gross means
Expenses have not been deducted yet
What are the 2 ways to account for inventory?
Periodic
Perpetual
What are 4 characteristics of the Periodic method of inventory?
Counts items to determine quantity on hand
Used for inexpensive items
Used by small businesses
Low cost
What are 3 characteristics of the Perpetual method for inventory?
Running record of inventory kept by computer program
Used by large business
Scanners and bar codes used to record transactions
What is the equation for Net Cost of Purchases?
Purchase price + Freight-in - Purchase returns- Purchase allowances- Purchase Discounts = Net Cost of Purchases
Freight-in
Transportation costs
Purchase Returns
Unsuitable goods returned to seller
Purchase Allowances
The reduction in the amount owed
Purchase Discounts are for….
Early payment
In Discount terms how would you read 2/10?
There is a 2% discount if bill is paid in 10 days
In discount terms how would you read n/30?
Full amount is due in 30 days