Credit Transactions & Pricing Method Flashcards
What are the accounting principles?
CHER @ MCG
Consistency, Historical Cost, Reporting Period, Monetary Unit, Conservatism, Going Concern
What are the qualitative characteristics?
RRUC
Reliability, Relevance, Understandability, Comparability
What are service firms?
Businesses that provide intangible good to customers, that cannot be touched and requires the customer to be present for the service to take place, all in return for a fee.
What are trading firms?
Business that aims to make a profit by purchasing goods from a wholesaler and selling them at a higher price. Where the difference between the cost price from the wholesaler and the selling price is the profit made.
What are the 5 price setting strategies?
- Recommended retail price
- Competitors Prices
- Market Reaction
- Percentage Mark up
- Cost Volume Profit Analysis
Recommended Retail Price
The selling price suggested by the wholesaler or manufacturer of the goods.
Competitors price
Where the prices are based on that of similar business in the same market’s selling price of similar items. Where the business does so to match and remain competitive.
Market reaction
The price is determined by the reaction of customers; where if demands are high selling prices set higher, if demands are low prices are discounted.
Mark up
Selling price = Cost price* (1+ mark up%)
Selling price is got by adding a predetermined profit margin to the cost price of the stock.
Cost Volume Profit Analysis
Tool used to determine the selling price or volume of sales necessary to achieve a specific profit.
Quantity = fixed + profit/selling price - variable
Variable Costs
Costs related to making the product, as per unit. Which will differ or change according to the number of goods sold.
Fixed costs
The cost associated with running the business regardless of the volume of sales.
Contribution margin
=Selling - Variable
The bottom line of the formula states the profit from each sale as it is essentially the revenue from sale minus the expenses of making the product.
Credit transactions
A credit transaction is when good are exchanged but the cash relating to the stock is exchanged at some later date.
Invoice
The source document that verifies the details of a credit transaction
Sales invoice
Where the business sells stock on credit to the customers,
Credit transactions
A credit transaction is when good are exchanged but the cash relating to the stock is exchanged at some later date.
Invoice
The source document that verifies the details of a credit transaction
Differentiate between Sales invoice & Purchase Invoice
Source document verifies credit sale of stock, where the business sells stock on credit to a customer (duplicate copy & letterhead)
Source document verifies credit purchase of stock, where the business purchases stock on credit (original cop & invoice addressed to)
Debtors
A customer who owes a debt to the business for good or services sold to them on credit.
Creditors
A supplier which the business owes a debt to for goods do services purchased from them on credit
Credit purchase
When a business buys stock or other assets from a supplier and is not required to pay until a later date. To be verified by the purchase invoice.
Break even
To break even is when the business earns enough revenue to cover the expenses of the variable costs, making zero profit.
Purchases journal
An accounting report which summarises all transactions involving the purchase of stock on credit, during a particular reporting period
