Test 2 Flashcards
merchandise
consists of products (goods) that a company buys to resell to customers
merchandiser
earns net income by buying and selling merchandise
wholesaler
buys products from manufacturers and sells them to retailers
retailer
buys products from manufacturers or wholesalers and sells them to consumers
inventory/merchandise inventory
products that a company owns and intends to sell
formula to compute income of a merchandiser
net sale-COGS=gross profit-expenses=net income
operating cycle for a merchandiser
(a) cash purchases of merchandise to (b) inventory for sale to (c) credit sales to (d) accounts receivable to (e) cash
company’s merchandise available for sale
beginning inventory + net purchases (ending inventory and COGS)
Companies account for inventory in one of two ways:
perpetual and periodic system
perpetual inventory system
updates accounting records for each purchase and sale of inventory
periodic inventory system
updates the accounting records for purchases and sales of inventory only at the end of a period
purchase returns
merchandise a buyer acquires but then returns to the seller
purchase allowances
refers to a seller granting a price reduction (allowance) to a buyer of deficient or unacceptable merchandise
FOB shipping point
the buyer accepts ownership when the goods depart the seller’s place of business; buyer pays shipping costs and has the risk of loss in transit; the goods are part of the buyer’s inventory when they are in transit
FOB destination
ownership of goods transfers to the buyer when the goods arrive at the buyer’s place of business; the seller is responsible for paying shipping charges and has the risk of loss in transit; seller does not record revenue from this sale until the goods arrive at the destination because this transaction is not complete before that point
Each sale of merchandise has two parts:
the revenue side and the cost side
gross method
records sales at the gross amount and records sales discounts if, and when, they are taken
net method
records sales at the net amount, which assumes that all discounts will be taken
what kind of account is a sales discount?
contra revenue account
credit memorandum
informs the buyer of a credit made to the buyer’s account receivable in the seller’s records
multiple-step income statement
shows subtotals between sales and net income, categorizes expenses, and often reports the details of net sales and expenses
selling expenses
include the expenses of advertising merchandise, making sales, and delivering goods to customers
general and administrative expenses
include expenses related to accounting, human resource management, and financial management
single-step income statement
income statement format that subtracts total expenses, including cost of goods sold, from total revenues with no other subtotals
acid-test ratio (quick ratio)
quick assets (cash, short-term investments, and current receivables) divided by current liabilities
what kind of account is an allowance for sale discount?
contra asset account
sales refund payable
current liability account reported on balance sheet
inventory returns estimated
current asset account (often as a subcategory of Inventory), reported in the balance sheet
COGS (cost of goods sold)
term used for the expense of buying and preparing merchandise for sale
merch. inventory
current asset
the current period’s ending inventory is:
the next period’s beginning inventory
credit terms 2/10, n/30
2% cash discount if amount is paid w/in 10 days, or the balance due in 30 days
sales returns
merchandise that customers return to the seller after the sale
net sales
sales - sales discounts - returns and allowances
close sales account at the end of the accounting period with a:
debit
goods on consignment
goods being shipped by owner (consignor) to another party (consignee)
net realizable value
sales price - cost of making the sale
