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Accounting ch. 5

QuestionAnswer
Acid-test ratio: Ratio used to assess a company's ability to settle its current debts with its most liquid assets; defined as quick assets (cash, short-term investments, and current receivables) divided by current liabilities.
Cash discount Reduction in the price of merchandise granted by a seller to a buyer when payment is made within the discount period.
Cost of goods sold: Cost of inventory sold to customers during a period; also called cost of sales
Credit memorandum: Notification that the sender has credited the recipient's account in the sender's records.
Credit period: Time period that can pass before a customer's payment is due.
Credit terms: Description of the amounts and timing of payments that a buyer (debtor) agrees to make in the future.
Debit memorandum Notification that the sender has debited the recipient's account in the sender's records.
Discount period Time period in which a cash discount is available and the buyer can make a reduced payment.
EOM: Abbreviation for end of month; used to describe credit terms for credit transactions.
FOB Abbreviation for free on board; the point when ownership of goods passes to the buyer;
FOB shipping point (or factory) means the buyer pays shipping costs and accepts ownership of goods when the seller transfers goods to carrier;
FOB destination means the seller pays shipping costs and buyer accepts ownership of goods at the buyer's place of business.
General and administrative expenses: Expenses that support the operating activities of a business.
Gross margin: net sales minus cost of goods sold; also called gross profit
Gross margin ratio Gross margin (net sales minus cost of goods sold) divided by net sales; also called gross profit ratio
Gross profit: net sales minus cost of goods sold; also called gross margin
Inventory: Goods a company owns and expects to sell in its normal operations.
List price: Catalog (full) price of an item before any trade discount is deducted.
Merchandise: Goods that a company owns and expects to sell to customers; also called merchandise inventory.
Merchandise inventory Goods that a company owns and expects to sell to customers; also called merchandise.
Merchandiser: Entity that earns net income by buying and selling merchandise.
Multiple-step income statement: Income statement format that shows subtotals between sales and net income, categorizes expenses, and often reports the details of net sales and expenses.
Periodic inventory system: Method that records the cost of inventory purchased but does not continuously track the quantity available or sold to customers; records are updated at the end of each period to reflect the physical count and costs of goods available.
Perpetual inventory system: Method that maintains continuous records of the cost of inventory available and the cost of goods sold.
Purchase discount: Term used by a purchaser to describe a cash discount granted to the purchaser for paying within the discount period.
Retailer: Intermediary that buys products from manufacturers or wholesalers and sells them to consumers
Sales discount: Term used by a seller to describe a cash discount granted to buyers who pay within the discount period.
Selling expenses: Expenses of promoting sales, such as displaying and advertising merchandise, making sales, and delivering goods to customers
Shrinkage: Inventory losses that occur as a result of theft or deterioration.
Single-step income statement: Income statement format that includes cost of goods sold as an expense and shows only one subtotal for total expenses.
Supplementary records: Information outside the usual accounting records; also called supplemental records.
Trade discount: Reduction from a list or catalog price that can vary for wholesalers, retailers, and consumers.
Wholesaler: Intermediary that buys products from manufacturers or other wholesalers and sells them to retailers or other wholesalers.
Created by: 1205581920
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