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accounting ch 4
exam
Question | Answer |
---|---|
How do merchandising & service firms differ? | two big accounting issues: inventory and cost of goods sold (COGS) |
wholesaler | is an intermediary that buys products from manufacturers or other wholesalers and sells them to retailers or other wholesalers |
retailer | an intermediary that buys products from manufacturers or wholesalers and sells them to consumers. Many retailers sell both products and services |
Accounting term for revenue of merchandise | sales |
costs of goods sold (COGS) | the expense of buying and preparing the merchandise |
Gross Profit or Gross Margin | equals net sales minus costs of goods sold. GM/GP=net sales-COGS |
computing income for merchandising company | Net Sales-COGS=GP-Expenses=Net Income |
Merchandise Inventory | refers to products that a company owns and intends to sell. It is a current asset |
perpetual inventory system | continually updates accounting records for merchandising transactions-specifically for those records of inventory available for sale and inventory sold |
Purchase discounts (credit terms) | a purchase that includes the amounts and timing of payments from a buyer to a seller. 2/10 means 2%discount if paid in 10 days. n/30 means the total amount is due in 30 days |
Purchase Returns | inventory returned to the seller |
Purchase allowances | credit for damaged inventory kept by the buyer (may sell at discount) |
FOB- free on board | designation determines who pays and when ownership rights transfer |
FOB Shipping Point | buyer pays, buy owns at shipping point |
FOB Destination | seller pays, seller owns until destination |
Sales of Merchandise | involves two parts: (1) revenue received in the form of an asset from the customer. (2) recognition of the cost of merchandise sold to the customer |
what kind of an account is sales discount | contra-revenue account |
sales discount | on credit sales can benefit a seller by decreasing the delay in receiving cash and reducing future collection efforts |
sales allowance | gives price reduction to buyer for defective merchandise |
Accounting Cycle: differences for merchandising firm | (1) inventory: current asset on balance sheet (2)COGS: cost/expense on income statement (3) Adjustment for shrinkage (4) income statement formats (single step&multi-step) |
Shrinkage | refers to the loss of inventory and it is computed by comparing a physical count of inventory with recorded amounts |
multiple-step income statement | format shows detailed computations of net sales and other costs and expenses and reports subtotals for various classes of items |
single-step income statement | lists costs of goods sold as another expense and shows only one subtotal for total expenses |
Gross Margin Ratio (or Gross Profit Ratio)*will be on exam | gross margin as percentage of sales Gross Margin Ratio=(net sales-COGS)/net sales |
Acid Test Ratio (or Quick ratio) | (cash+short-term investments+current receivables)/current liabilities |