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chapter 4 accounting

QuestionAnswer
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