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Chapter 4
Accounting for Merchandising Businesses
34
Accounting
Undergraduate 2
09/29/2014

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Cards

Term
Cash Discount
Definition
Price reduction on merchandise sold offered by sellers to encourage prompt payment; when taken, represents a sales discount to the seller and a purchase discount to the buyer of the merchandise
Term
Common Size financial Statements
Definition
Financial statements in which dollar amounts are converted to percentages to aid in comparing financial data among periods and among companies
Term
Cost of Goods Available for Sale
Definition
Total costs paid to obtain goods and ready them for sale, including the cost of beginning inventory plus purchases and transportation-in costs, less purchase returns and allowances and purchase discounts
Term
Cost of Goods Sold
Definition
Total costs incurred for the goods sold during a specific accounting period
Term
FOB (free on board) Shipping Point
Definition
Shipping term that the buyer bears the freight costs
Term
Gain
Definition
increases in assets or decreases in liabilities that result from peripheral or incidental transactions
Term
Gross Margin
Definition
Difference between sales revenue and cost of goods sold; the amount a company makes from selling goods before subtracting operation expenses
Term
Gross Margin Percentage
Definition
Expressing gross margin as a percentage of sales by dividing gross margin by net sales; the amount of each dollar of sales that is profit before deducting any operating expense
Term
Gross Profit
Definition
Term
Loss
Definition
Decreases in assets or increases in liabilities that result from peripheral or incidental transactions
Term
Merchandise Inventory
Definition
Finished goods held for resale to customers
Term
Merchandising Businesses
Definition
Companies that buy and resell merchandise inventory
Term
Multistep income statement
Definition
An income statement that has more than one subtraction in arriving at net income. An income statement showing gross profit is an indication it is a multiple-step income statement.
Term
Net Income Percentage
Definition
Net Income/Revenue
Term
Net Sales
Definition
Sales less returns from customers and allowances or cash discounts granted to customers
Term
Operating Income (or Loss)
Definition
Income after subtracting operating expenses from operating revenues. Gains and losses and other peripheral activities are added to or subtracted from operating income to determine net income or loss
Term
Period Costs
Definition
Expenses recognized in the period in which they are incurred regardless of when cash payments for them are made; costs that cannot be directly traced to products
Term
Periodic Inventory System
Definition
Method of accounting for inventory that requires a physical count of goods on hand at the end of the accounting period in order to determine the amount of cost of goods sold and to update the Inventory account
Term
Perpetual Inventory System
Definition
Method of accounting for inventory in which the amount of cost of goods sold is recorded for each sale of inventory; the Inventory account is increased and decreased with each purchase and sale of merchandise
Term
Product Cost
Definition
All costs directly traceable to acquiring inventory and getting it ready for sale, including transportation-in. Contrast with selling and administrative costs
Term
Purchase discount
Definition
Reduction in the gross price of merchandise offered to a buyer if the buyer pays cash for the merchandise within a stated time
Term
Purchase Returns and Allowances
Definition
A reduction in the cost of purchases resulting from dissatisfaction with merchandise purchased
Term
Retail Companies
Definition
Businesses that sell merchandise directly to consumers
Term
Return on Sales
Definition
Profitability measure that reflects the percent of net income each sales dollar generates; computed by dividing net income by net sales. Also called net income percentage
Term
Sales Discounts
Definition
Cash discount offered by the seller of merchandise to encourage a customer to pay promptly
Term
Sales Returns and Allownances
Definition
A reduction in sales revenue resulting from dissatisfaction with merchandise sold
Term
Schedule of Costs of Goods Sold
Definition
Internal report used with the periodic inventory system that reflects the computation of cost of goods sold
Term
Selling and administrative Costs
Definition
Costs such as advertising expense and rent expense that cannot be directly traced to inventory; recognized as expenses in the period in which they are incurred. Contrast with product costs
Term
Shrinkage
Definition
Decreases in inventory for reasons other than sales to customers
Term
Single-Step income statement
Definition
income statement format which presents net income in one step, the difference between total revenue and total expenses. Contrast with multi-step income statement
Term
Transportation-In (Freight-In)
Definition
Cost of freight of goods purchased under FOB shipping point terms; A product cost usually added to the cost of inventory
Term
Transportation-Out (Freight-Out)
Definition
Freight cost for goods delivered to customers under FOB destination terms; a period cost expensed when incurred
Term
2/10, n/30
Definition
Common payment terms indicating the seller is offering the purchaser a 2% discount off the gross invoice price if the purchaser pays the reduced amount in cast within 10 days form the merchandise purchase date
Term
Wholesale Companies
Definition
Companies that sell goods to other businesses
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