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ACC-Chapter 5

Administrative Expenses Expenses relating to general operating activities such as personnel management, accounting, and store security
Contra-Revenue Account An account that is offset against a revenue account on the income statement
Cost of Goods Sold The total cost of merchandise sold during the period
FOB Destination Freight terms indicating that the seller places the goods free on board to the buyer’s place of business, and the seller pays the freight
FOB Shipping Point Freight terms indicating that the seller places goods free on board the carrier, and the buyer pays the freight costs
Gross Profit The excess of net sales over the cost of goods sold
Gross Profit Rate Gross profit expressed as a percentage, by dividing the amount of gross profit by net sales
Income from Operations Income from a company’s principle operating activity; determined by subtracting cost of goods sold and operating expenses from net sales
Multiple-Step Income Statement An income statement that shows several steps in determining net income
Net Sales Sales less sales returns and allowances and less sales discounts
Nonoperating Activities Varies revenues, expenses, gains, and losses that are unrelated to a company’s main line of operations
Operating Expenses Expenses incurred in the process of earning sales revenues
Other Expense and Losses A nonoperating-activities section of the income statement that shows expenses from auxiliary operations and losses unrelated to the company’s operations
Other Revenues and Gains A nonoperating-activities sections of the income statement that shows revenues from auxiliary operations and gains unrelated to the company’s operations
Periodic Inventory System An inventory system under which the company does not keep detailed inventory records throughout the accounting period but determines the cost of goods sold only at the end of an accounting period
Perpetual Inventory System An inventory system under which the company keeps detailed records of the cost of each inventory purchase and sale and the records continuously show the inventory that should be on hand
Purchase Allowance A deduction made to the selling price of merchandise, granted by the seller so that the buyer will keep the merchandise
Purchase Discount A cash discount claimed by a buyer for prompt payment of a balance due
Purchase Invoice A document that supports each credit purchase
Purchase Return A return of goods from the buyer to the seller for a cash or credit refund
Sales Discount A reduction given by a seller for prompt payment of a credit sale
Sales Invoice A document that supports each credit sale
Sales Returns and Allowances Purchase returns and allowances from the seller’s perspective
Sales revenue (sales) The primary source of revenue in a merchandising company
Selling Expenses Expenses associated with making sales
Single-Step Income Statement An income statement that shows only one step in determining net income



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