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Survey of Accounting 4e
Chapter 4 Accounting for Merchandise Business
31
Accounting
Graduate
11/30/2008

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Term
Administrative expenses
Definition
Expenses incurred in the administration or general operations of the business.
Term
Book inventory
Definition
The amount of inventory recorded in the accounting records.
Term
Cost of merchandise sold
Definition
The cost that is reported as an expense when merchandise or a manufactured product is sold; also called cost of goods sold.
Term
Credit memorandum
Definition
A form used by a seller to inform the buyer of the amount the seller proposes to decrease the account receivable due from the buyer.
Term
Credit period
Definition
The amount of time the buyer is allowed in which to pay the seller.
Term
Credit terms
Definition
Terms for payment on account by the buyer to the seller.
Term
Debit memorandum
Definition
A form used by a buyer to inform the seller of the amount the buyer proposes to decrease the account payable due the seller.
Term
FOB (free on board) destination
Definition
Freight terms in which the seller pays the transportation costs from the shipping point to the final destination.
Term
FOB (free on board) shipping point
Definition
Freight terms in which the buyer pays the transportation costs from the shipping point to the final destination.
Term
Gross profit
Definition
Sales minus the cost of merchandise sold.
Term
Income from operations (operating income)
Definition
The excess of gross profit over total operating expenses.
Term
Indirect method
Definition
A method of preparing the statement of cash flows that reconciles net income with net cash flows from operating activities.
Term
Inventory shrinkage
Definition
The amount by which the merchandise for sale, as indicated by the balance of the merchandise inventory account, is larger than the total amount of merchandise counted during the physical inventory.
Term
Invoice
Definition
The bill that the seller sends to the buyer.
Term
Merchandise available for sale
Definition
The cost of merchandise available for sale to customers.
Term
Merchandise inventory
Definition
Merchandise on hand (not sold) at the end of an accounting period.
Term
Multiple-step income statement
Definition
A form of income statement that contains several sections, subsections, and subtotals.
Term
Net sales
Definition
Gross sales less sales returns and allowances and sales discounts.
Term
Other expense
Definition
Expenses that cannot be traced directly to operations.
Term
Other income
Definition
Revenue from sources other than the primary operating activity of a business.
Term
Periodic inventory method
Definition
The inventory method in which the inventory records do not show the amount available for sale or sold during the period.
Term
Perpetual inventory method
Definition
The inventory system in which each purchase and sale of merchandise is recorded in an inventory account.
Term
Physical inventory
Definition
A detailed listing of the merchandise for sale at the end of an accounting period.
Term
Purchase discounts
Definition
Discounts taken by the buyer for early payment of an invoice.
Term
Purchase return or allowance
Definition
From the buyer’s perspective, returned merchandise or an adjustment for defective merchandise.
Term
Report form
Definition
The form of balance sheet in which assets, liabilities, and stockholders’ equity are reported in a downward sequence.
Term
Sales
Definition
The total amount charged to customers for merchandise sold, including cash sales and sales on account.
Term
Sales discounts
Definition
From the seller’s perspective, discounts that a seller can offer the buyer for early payment.
Term
Sales returns and allowances
Definition
From the seller’s perspective, returned merchandise or an adjustment for damaged or defective merchandise.
Term
Selling expenses
Definition
Expenses that are incurred directly in the selling of merchandise.
Term
Single-step income statement
Definition
A form of income statement in which the total of all expenses is deducted from the total of all revenues.
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