Term
|
Definition
| an account that is offset against a revenue account on the income statement |
|
|
Term
|
Definition
| the total cost of merchandise sold during the period |
|
|
Term
|
Definition
| the excess of net sales over the cost of goods sold |
|
|
Term
|
Definition
| gross profit expressed as a percentage by dividing the amount of gross profit by net sales |
|
|
Term
|
Definition
| sales less sales returns and allowances and sales discounts |
|
|
Term
| periodic inventory system |
|
Definition
| an inventory system in which a company doesnot maintain detailed records of goods on and and determines the cost of goods sold only at the end of an accounting period |
|
|
Term
| perpetual inventory system |
|
Definition
| a detailed inventory system in which a company matintains the cost of each inventory item and the records continuously show the inventory that should be on hand |
|
|
Term
|
Definition
| measures the percentage of each dollar of sales that results in net income, computed by dividing net income by net sales |
|
|
Term
|
Definition
| a deduction made to the selling price of merchandise, granted by the seller so that the buyer will keep the merchandise |
|
|
Term
|
Definition
| a cash discount claimed by a buyer for prompt payment of a balance due |
|
|
Term
|
Definition
| a cash discount claimed by a buyer for prompt payment of a balance due |
|
|
Term
|
Definition
| a document that supports each purchase |
|
|
Term
|
Definition
| a return of goods from the buyer to the seller for cash or credit |
|
|
Term
| Quality of earnings ratio |
|
Definition
| a measure used to indicate the extent to which a company's earnings provide a full and transparent depiction of its performance; computed as net cash provided by operating activities divided by net income |
|
|
Term
|
Definition
| a reduction given by a seller for prompt payment of credit sale |
|
|
Term
|
Definition
| a document that provides support for each sale |
|
|
Term
| sales returns and allowances |
|
Definition
| transactions in which the seller either accepts goods back from the purchaser (a return) or grants a reduction in the purchase price (an allowance) so that the buyer will keep he goods |
|
|
Term
|
Definition
| primary source of revenue in a merchandising company |
|
|
Term
| identify the differences between a service company and a merchandising company |
|
Definition
| because of the presence of inventory, a merchandising company has sales revenue, cos of goods sold, and gross profit. to account for inventory, a merchandising company must choose between a perpetual inventory system and a periodic inventory system |
|
|
Term
| explain the recording of purchases under a perpetual inventory system |
|
Definition
| the Merchandise Inventory account is debited for all purchases of merchandise for freight costs, and it is credited for purchase discounts and purchase returns and allowances |
|
|
Term
| explain the recording of sales revenue under a perpetual inventory system |
|
Definition
| when inventory is sold, accounts receivable (or cash) is debited and sales is credited for the selling price of the merchandise At the same time, Cost of Goods Sold is debited and Merchandise Inventory is credited for the cost of inventory items sold. Subsequent entries are required for (a) sales returns and allowances and (b) sales discounts. |
|
|
Term
| distinguish between a single step and multiple step income statement |
|
Definition
| in a single step income statement, companies classify all data under two categories, revenues or expenses, and net income is determined in one step. A multiple-step income statement shows numerous steps in determining net income, including results of non-operationg activities. |
|
|
Term
| determine cost of goods sold uner a period system |
|
Definition
| the periodic system uses multiple accounts to keep track of transactions that affect inventory. To determine cost of goods sold, first calculate cost of goods purchased by adjusting purchases for returns, allowances, discounts, and freight-in. Then calculate cost of goods sold by adding cost of goods purchased to beginning inventory and subtracting ending inventory |
|
|
Term
| explain the factors affecting profitability |
|
Definition
| profitability is affected by gross profit, as measure by the gross profit rate, and by management's ability to control costs, as measured by the profit margin ratio |
|
|
Term
| identify a quality of earnings indicator |
|
Definition
| earnings have high quality if they provide a full and transparent depictio of how a company performed. An indicator of the quality of earnings is the quality of earnings ratio, which is net cash provided by operating activities divided by net income. Measures above 1 suggest the company is employing conservative accounting practices. Measure significantly below 1 might suggest the company is using aggressive accounting to accelerate the recognition of income. |
|
|
Term
| FOB destination, who pays? |
|
Definition
|
|
Term
| FOB shipping point, who pays? |
|
Definition
|
|
