Fundamental Accounting Principles CH5 Flashcards
Merchandise
refers to products, also called goods, that a company buys to resell.
Merchandiser
earns net income by buying and selling merchandise
- wholesalers
- retailers
wholesaler
buys products from manufacturers and sells them to retailers
retailer
buys products from manufacturers or wholesalers and sells them to consumers
Cost of goods sold (COGS)
the expense of buying and preparing merchandise
*also called cost of sales
Service Company Income Compute
Revenues - expenses = net Income
Merchandiser company income compute
Net sales - Cost of goods sold=Gross profit - expenses = net income
Gross Profit (gross margin)
Sales - COGS (cost of goods sold)
Merchandise Inventory
refers to products that a company owns and intends to sell.
Perpetual Inventory System
updates accounting records for each purchase and each sale of inventory.
- requires that each sales transaction for a merchandiser whether for cash or on credit, has two entries: one for revenue and one for cost.
1. revenue received (and asset increased) from the customer.
2. Cost of goods sold incurred (and assets decreased) to the customer.
Periodic Inventory system
updates accounting records for purchases and sales of inventory only at the end of a period
Credit terms
include the amounts and timing of payments from a buyer to a seller
- credit period
- cash discount
- purchases discount
- sales discount
- discount period
Credit terms breakdown
2/10, n30 means that if paid with in the first 10 days of the invoice the company is offered a 2% discount. If it isn’t paid within 10 days it is due net 30 meaning the company has 30 days to pay the invoice.
Gross Method
records the purchase at its gross (full) invoice
FOB Shipping
FOB(free on board) means the buyer accepts ownership when the goods depart the seller’s place of business. The buyer pays shipping costs and has the risk o floss in transit.
