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chapter 4 accounting
| Question | Answer |
|---|---|
| Merchandise | Products or goods a company acquires to resell to customers |
| Merchandiser | Wholesalers or retailers that earn net income by buying and selling merchandise |
| Wholesaler | Intermediary that buys products from manufacturers or other wholesalers and sells them to retailers or other wholesalers |
| Retailer | intermediary that buys products from manufacturers or wholesalers and sells them to customers |
| How does a merchandiser report income? | Net sales-cost of goods sold= gross profit-expenses = net income |
| How does a service company report income? | Revenue-expenses = net income |
| Sales | Revenues from selling merchandise |
| Cost of Goods sold | Expense of buying and preparing the merchandise |
| merchandise inventory | current asset not on a service company's balance sheet. Products that a company owns and intends to sell |
| Operating cycle of a merchandiser | a. purchases b. merchandise inventory c. credit sales d. accounts receivable e. cash collection |
| Inventory | products a company owns and expects to sell in its normal operations |
| How does a merchandiser report income? | Net sales-cost of goods sold= gross profit-expenses = net income |
| beginning inventory + net purchases = | merchandise available for sale |
| How does a service company report income? | Revenue-expenses = net income |
| perpetual inventory system | continually updates accounting records for merchandising transactions-specifically for those records of inventory available for sale and inventory sold |
| periodic inventory system | updates the accounting records for merchandise transactions only at the end of a period |
| Gross profit/profit margin | equals net sales less cost of goods sold |
| beginning inventory + net purchases = | merchandise available for sale |
| Source document | serves as the purchase invoice |
| Credit terms | amounts and timing of payments from a buyer to seller |
| purchase returns | merchandise a buyer acquires but then returns to the seller |
| Source document | serves as the purchase invoice |
| purchase allowance | reduction in cost of defective or unacceptable merchandise that a buyer acquires |
| debit memorandum | informs the seller of a debit made to the seller's account in the buyer's records. Occurs when a buyer returns or takes an allowance on merchandies |
| n/10 EOM | net 10 days after the end of the month |
| Free on Board (FOB)point | determines who pays transportation costs |
| n/30 | net 30 days (payment due) |
| FOB shipping point aka FOB factory | buyer accepts ownership when goods depart the seller's place of business |
| credit period | amount of time allowed before a full payment is due |
| Buyer's allowance for defective merchandise... | usually offset against buyer's current account payable balance to the seller. When cash is refunded, cash acct debited instead of accts payable |
| cash discounts | encourage buyers to pay earlier |
| FOB destination | ownership of goods transfers to buyer when the goods arrive at the buyer's place of business. The seller is responsible for paying shipping and bears risk of damage or loss in transit. |
| purchase discount | cash discount for a buyer |
| When would a seller record revenue when shipping is FOB destination? | when goods arrive at the destination |
| sales discount | contra-revenue account, increased with a debit. seller's view of a cash discount, described in credit terms on invoice |
| Supplementary records | information outside the usual general ledger accounts |
| discount period | time frame in which discount is applied |
| Sales transaction | 1. revenue received in form of an asset from customer 2. recognition of the cost of merchandise sold to customer |
| purchase returns | merchandise a buyer acquires but then returns to the seller |
| Sales discounts benefit a seller by | decreasing the delay in receiving cash and reducing future collection efforts |
| purchase allowance | reduction in cost of defective or unacceptable merchandise that a buyer acquires |
| Contra revenue account | Means a sales discounts account is deducted from sales account when computing a company's net sales |
| debit memorandum | informs the seller of a debit made to the seller's account in the buyer's records. Occurs when a buyer returns or takes an allowance on merchandies |
| sales allowance | reductions in the selling price of merchandise sold to customers |
| FOB shipping point aka FOB factory | buyer accepts ownership when goods depart the seller's place of business |
| credit memorandum | informs a buyer of the seller's credit to the buyer's account receivable |
| Buyer's allowance for defective merchandise... | usually offset against buyer's current account payable balance to the seller. When cash is refunded, cash acct debited instead of accts payable |
| Shrinkage | loss of inventory, computed by comparing a physical count with recorded amounts, performed atleast once annually |
| FOB destination | ownership of goods transfers to buyer when the goods arrive at the buyer's place of business. The seller is responsible for paying shipping and bears risk of damage or loss in transit. |
| Multiple step income statement | shows detailed computations of net sales and other costs and expenses and reports subtotals for various classes of items |
| When would a seller record revenue when shipping is FOB destination? | when goods arrive at the destination |
| Part of multiple step income statement | 1. gross profit= net sales - cost of goods sold 2. income from operations = gross profit - operating expenses 3. net income = income from operations adjusted for nonoperating items |
| Supplementary records | information outside the usual general ledger accounts |
| selling expenses | expenses of promoting sales by displaying and advertising merchandise, making sales, and delivering goods to customers |
| Sales transaction | 1. revenue received in form of an asset from customer 2. recognition of the cost of merchandise sold to customer |
| general and administrative expenses | support a company's overall operations and include expenses related to accounting, HRM, financial management. |
| Sales discounts benefit a seller by | decreasing the delay in receiving cash and reducing future collection efforts |
| non-operating activities | other expenses, revenues, losses, gains that are unrelated to a company's operations |
| Contra revenue account | Means a sales discounts account is deducted from sales account when computing a company's net sales |
| other revenues and gains | interest revenue, dividend revenue, rent revenue, gains from asset disposal |
| sales return | merchandise that the customers return to the seller after a sale |
| other expenses and losses | interest expense, losses from asset disposals, casualty losses |
| sales allowance | reductions in the selling price of merchandise sold to customers |
| single step income statement | lists cost of goods sold as another expense and only shows one subtotal for total expenses. Expenses grouped into few if any categories |
| credit memorandum | informs a buyer of the seller's credit to the buyer's account receivable |
| Shrinkage | loss of inventory, computed by comparing a physical count with recorded amounts, performed atleast once annually |
| selling expenses | expenses of promoting sales by displaying and advertising merchandise, making sales, and delivering goods to customers |
| Acid test ratio formula | current assets(cash and cash equivalents + short term investments + current receivables) - inventory/ current liabilities |
| Multiple step income statement | shows detailed computations of net sales and other costs and expenses and reports subtotals for various classes of items |
| Part of multiple step income statement | 1. gross profit= net sales - cost of goods sold 2. income from operations = gross profit - operating expenses 3. net income = income from operations adjusted for nonoperating items |
| selling expenses | expenses of promoting sales by displaying and advertising merchandise, making sales, and delivering goods to customers |
| general and administrative expenses | support a company's overall operations and include expenses related to accounting, HRM, financial management. |
| non-operating activities | other expenses, revenues, losses, gains that are unrelated to a company's operations |
| other revenues and gains | interest revenue, dividend revenue, rent revenue, gains from asset disposal |
| other expenses and losses | interest expense, losses from asset disposals, casualty losses |
| single step income statement | lists cost of goods sold as another expense and only shows one subtotal for total expenses. Expenses grouped into few if any categories |
| Acid test ratio formula | current assets(cash and cash equivalents + short term investments + current receivables) - inventory/ current liabilities |
| Classified balance sheet | reports merchandise inventory as a current asset, usually after accounts receivable according to an asset's nearness to liquidity |
| acid test ratio | measures a merchandiser's ability to pay current liabilities |
| Acid test ratio formula | current assets(cash and cash equivalents + short term investments + current receivables) - inventory/ current liabilities |
| Gross margin ratio | net sales-cost of goods sold/net sales |
Created by:
sjnelson86
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