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Accounting IA Ch.6-8

QuestionAnswer
What is a trade discount? Discount for buying in large quantity.
What account is affected for purchase discounts in a perpetual system? How is is affected? Merchandise Inventory is credited.
What is a debit memo (debit memorandum)? Informs the seller of the amount the buyer debited their A/P account to the seller for purchase returns. "Hey, we owe you less money!"
What is a credit memo (credit memorandum)? An authorization for the seller to decrease their A/R account for the buyer. "Hey, Joe Blow owes us less money!"
What does 2/10, n30 mean? How is it read? Credit terms. 2% discount if paid in full in 10 days, must be paid in full in 30 days. Read as "Two ten net thirty".
What is a report form? A balance sheet in a three part downward form.
What is an account form? A balance sheet with assets on the left and liabilities and owner's equity on the right.
What are administrative expenses (general expenses)? Give a few examples. Expenses incurred in management of the business. EG office salaries, office supplies, depreciation of office equipment
What are selling expenses? Give a few examples. Expenses incurred in the direct selling of merchandise. EG advertising expenses, store salaries, delivery fees, depreciation of store equipment and buildings, rent expenses.
How is operating income (income from operations) calculated? Operating income=Net Income Therefore, gross profit minus operating expenses equals operating income or net income/loss.
Why are perpetual systems so widely used? Many businesses use computerized systems.
How are the cost of merchandise sold and inventory determined in a periodic system? By physically counting the inventory at the end of the period.
How are the cost of merchandise sold and inventory determined in a perpetual system? Each purchase and sale is recorded in the Merchandise Inventory and Cost of Merchandise Sold accounts.
How do you calculate Net Sales? Sales-Sales Returns and Allowances-Sales Discounts = Net Sales
What kind of accounts are Sales R&A and Sales Discounts? How are the accounted for on the income statement? They are contra asset accounts. They are subtracted from sales to get net sales.
How do you calculate net income? Sales-Cost of Merchandise Sold = Gross Profit - Operating Expenses = Net Income/Loss
How is gross profit calculated? Sales-Cost of Merchandise Sold = Gross Profit
Created by: jilly15