Chapter 4 & 5
Quiz yourself by thinking what should be in
each of the black spaces below before clicking
on it to display the answer.
Help!
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| show | goods that a company owns and expects to sell to customers; also called merchandise inventory or inventory
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| merchandiser | show 🗑
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| show | intermediary that buys products from manufacturers or other wholesalers and sells them to retailers or other wholesalers
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| retailer | show 🗑
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| show | equals revenues from selling merchandise minus both the cost of merchandise sold and other expenses
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| show | revenues from selling merchandise
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| cost of goods sold | show 🗑
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| show | net sales - cost of goods sold = gross profit - operation expenses = net income
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| gross profit | show 🗑
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| gross margin | show 🗑
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| show | goods that a company owns and expects to sell to customers; also called merchandise or inventory; normal debit balance account, increase a Dr. account, thus decrease a Cr., asset, BS
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| inventory | show 🗑
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| operating cycle for a merchandiser | show 🗑
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| merchandise available for sale | show 🗑
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| MAS (equation) (beginning inventory) | show 🗑
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| show | BI
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| show | NP
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| cost of goods sold | show 🗑
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| ending inventory | show 🗑
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| MAS (equation) (ending inventory) | show 🗑
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| show | perpetual system and periodic system
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| show | method that maintains continuous records of the cost of inventory available and the cost of goods sold; at each purchase and each sale of inventory
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| show | method that records the costs of inventory purchased but does not continuously track the quantity available or sold to customers; records are updated at the end of each period to reflect the physical count and costs of goods available
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| show | the perpetual system is used for tracking units available and the periodic system is used to compute cost of sales
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| show | BI + purchases = MAS - EI = CGS
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| show | costs recorded in merchandise inventory
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| list price | show 🗑
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| selling price | show 🗑
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| show | reduction from a list or catalog price that can vary for wholesalers, retailers, and consumers; not journalized; purchases are recorded based on invoice amount
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| credit terms | show 🗑
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| EOM | show 🗑
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| "n/10 EOM" | show 🗑
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| "n/30" | show 🗑
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| show | time period that can pass before a customer's payment is due
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| show | reduction in the price of merchandise granted by a seller to a buyer when payment is made within the discount period
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| purchases discount | show 🗑
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| show | terms used by a seller to describe a cash granted to buyers who pay within the discount period
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| show | credit term for sales/purchase discount when full payment is due within 30-day credit period, but the buyer can deduct 2% of the invoice amount if payment is made within 10 day of the invoice date
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| discount period | show 🗑
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| show | method of recording purchases at the full invoice price w/o deducting any cash discounts
(1) used more in practice
(2) easier to apply
(3) less costly
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| purchases returns | show 🗑
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| purchases allowances | show 🗑
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| debit memorandum | show 🗑
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| show | used by manufacturers and wholesalers to offer better prices for greater quantities purchased
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| n | show 🗑
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| FOB | show 🗑
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| show | means the buyer shipping costs and accepts ownership of goods when the seller transfers to the carrier
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| show | means the seller pays the shipping costs and the buyer accepts ownership of the goods of the buyer's place of business
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| transportation-in/freight-in | show 🗑
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| show | a seller is responsible for paying shipping costs, it records these costs in a delivery expense account; reported as a selling expense in the sellers income statement
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| show | information outside the usual accounting records; also called supplemental records; refer to information outside the usual ledger accounts
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| show | records sales at the full amount and records sales discounts; if and when, they are taken; requires a period end adjusting entry to estimate future sales discount
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| net method | show 🗑
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| show | contra revenue account; subtracted from the sales account when computing net sales, which has a normal debit balance; thus increase Dr. and decrease a Cr., expense, IS
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| contra revenue account | show 🗑
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| show | customer dissatisfied with a purchase, returns the merchandise for a full refund
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| show | customer dissatisfied with a purchase, keep the merchandise with a partial refund
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| sales returns and allowances (part 1) | show 🗑
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| show | in addition, estimates of future sales returns and allowances (relate to current - period sales) are made with an adjusting entry that debits sales returns and allowances
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| sales returns and allowances (part 3) | show 🗑
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| credit memorandum | show 🗑
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| shrinkage | show 🗑
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| temporary accounts (merchandisers) (part 1) | show 🗑
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| temporary accounts (merchandisers) (part 2) | show 🗑
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| show | multiple step & single step
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| multiple step income statement | show 🗑
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| show | the expenses of advertising merchandise, making sales, and sales, and delivering goods to customers
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| show | support a company's overall operations and include expenses related to accounting, human resources, and finances
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| nonoperating activities | show 🗑
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| other revenues and gains | show 🗑
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| other expenses and losses | show 🗑
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| show | no reportable nonoperating activities, its income from operations
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| single-step income statement | show 🗑
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| show | the classified balance sheet reports merchandise inventory as a current asset, usually after accounts receivable, according to how quickly they can be converted to cash
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| show | a measure of a merchandiser's ability to pay current liabilities (referred to as it liquidity; also called quick ratio, is defined as quick assets (cash, short-term investments, and current receivables divided by current liabilities
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| acid-test ratio (part 2) | show 🗑
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| show | cash and cash equivalents + short terms investments + current receivables / current liabilities
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| show | defined as gross margin (net sales minus cost of goods sold) divided by net sales; differs from the profit margin ratio that it excludes all costs except cost of goods sold
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| show | net sales - cost of goods sold / net sales
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| show | periodic system, temporary account that accumulates the cost of all purchase transactions during each period; has a normal balance, thus increases a Dr., and decreases a Cr., BS
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| show | periodic system, temporary account that accumulates discounts taken during the period; contra purchase (expense) account; normal credit balance; thus increase a Cr.; and decrease a Dr.; BS; decrease cost of merchandise available for sale
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| show | temporary account accumulates the cost of all returns and allowances; contra purchase (expense) account; normal credit balance, thus increase a Cr., decrease a Dr.; BS; decrease cost of merchandise available for sale
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| show | cost is recorded in a temporary account; normal debit balance account; thus increasing a Dr., decrease a Cr.; BS; increases merchandise available for sale
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| sales returns and allowances (account type) | show 🗑
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| show | owner of goods held by another party who will sell them for the owner.
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| consignee | show 🗑
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| show | expected selling price (value) of an item minus the cost of making the sale
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| four methods of inventory systems | show 🗑
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| First-in, first out (FIFO) | show 🗑
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| Last in, first out (LIFO) | show 🗑
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| weighted average (WA) (average cost) | show 🗑
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| show | method for assigning cost to inventory when the purchase cost of each item in inventory is identified and used to compute cost of goods sold and/or cost of inventory
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| weighted average (equation) | show 🗑
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| lower of cost or market | show 🗑
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| show | number of times a company's average inventory is sold during a period; computed by dividing cost of goods sold by average inventory, also called merchandise turnover
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| show | inventory turnover = cost of goods sold / average inventory
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| days' sales in inventory | show 🗑
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| show | day's sale in inventory = ending inventory / cost of goods sold x 365
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| show | requires a company to use the same accounting methods period after period so that financial statements are comparable across periods
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| retail inventory method | show 🗑
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| show | procedure to estimate inventory by using the past gross profit rate to estimate cost of goods sold, which is then subtracted from the cost of goods available for sale
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| show | beginning inventory + ending inventory / 2
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