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ACCT 2301 Ch5-9
Exam 2 Prep
| Question | Answer |
|---|---|
| The inventory method in which inventory records do not show the amount available for sale during the period. | Periodic Inventory Method |
| The inventory method in which each purchase and sale of merchandise is recorded in an inventory account. | Perpetual Inventory Method |
| A detailed listing of merchandise for sale at the end of an accounting period. | Physical Inventory |
| Revenue received for merchandise sold to customers less any sales returns and allowances and sales discounts. | Net Sales Revenue |
| The amount of inventory recorded in the accounting records. | Book Inventory |
| The account in the general ledger that summarizes the balances of accounts in a subsidiary ledger. | Controlling Account |
| The cost that is recorded as an expense when merchandise is sold. | Cost Of Goods Sold |
| The amount of time the buyer is allowed in which to pay seller. | Credit Period |
| The terms for payment on account by the buyer to the seller. | Credit Terms |
| Freight terms in which the seller pays the transportation costs from the shipping point to the destination. | FOB Destination |
| Freight terms in which the buyer pays the transportation costs from the shipping point to the final destination. | FOB Shipping Point |
| Sales revenue minus the cost of goods sold. | Gross Profit |
| The excess of gross profit over total operation expenses. | Income From Operations (or Operating Income) |
| Merchandise on hand (not sold) st the end of an accounting period. | Merchandise Inventory |
| From the buyer's perspective, returned merchandise or an adjustment for defective merchandise. | Purchase Return (or Purchase Allowance) |
| The total amount charged to customers for merchandise sold, including cash sales and sales on account. | Sales Revenue |
| From the seller's perspective, discounts that the seller may offer the buyer for early payment. | Sales Discount |
| From the seller's perspective, returned merchandise or an adjustment for defective merchandise. | Sales Return (or Sales Allowance) |
| Expenses that incurred DIRECTLY in the selling of merchandise. | Selling Expenses |
| Expenses incurred in the administration or general operations of the business. | General & Administrative Expenses |
| A ledger containing individual accounts with a common characteristic. | Subsidiary Ledger |
| Expenses that cannot be directly traced to operations. | Other Expenses |
| Revenue from sources other than the primary operating activity. | Other Income |
| What are the two methods for recording sales & purchase discounts? | Gross Method and Net method |
| Which of the two methods for recording sales & purchase discounts IS MORE PRACTICAL than the other? | Gross Method |
| List the conditions under which Revenue should be recognized: | The selling company: has completed most of the activities necessary to produce & sell the goods, the costs associated can be reasonably measured, can objectively measure the amount of revenue earned, and reasonably sure of collection. |
| Interpret the following: 3/20, n/30 | 3% discount if paid within 20 days of the purchase/invoice date, otherwise the gross amount is due in 30 days |
| What is the difference between the two methods of recording sales discounts? | net method - sale is recorded at net amount(gross-discount), & discounts not taken is adjusted after discount period; Gross Method- Sales are recorded at gross amount, & discounts are recorded ONLY if/when taken. |
| What are the two methods for recording purchases of inventory? | Periodic & Perpetual |
| Freight term (when goods are in transit) for which the title passes to the buyer at the point of shipment | FOB Shipping Point |
| Freight term (when goods are in transit) for which the title passes to the buyer when the goods reach the destination specified by the buyer. | FOB Destination |
| Formula to calculate: Inventory Turnover | (COGS)/(Average Inventory) = |
| Formula to calculate: Average Inventory | (Beg Inventory + End Inventory)/2 = |
| Formula to calculate: Asset Turnover | (Net Sales)/(Average Total Assets)= |
| Formula to calculate: Profit Margin on Sales | (Net Income)/(Net Sales)= |
| Formula to calculate: Gross Profit Percentage | (Gross Profit)/(Net Income)= |
| Ratio that measures the liquidity of inventory | Inventory Turnover |
| Ratio that measure how efficiently assests are used to generate sales | Asset Turnover |
| Ratio that measures net income generated by each dollar of sales | Profit Margin of Sales |
| Ratio that measures the excess of sales over product costs | Gross Profit Percentage |
| Formula to calculate: Net Sales Revenue | Sales - Discounts - Returns/Allowances = |
Created by:
HBU-AST
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