Accounting 200 Ch 4 Merchandising Business

Front 1

Gross profit

Back 1

Net sales – Cost of Goods Sold

Front 2

Purchases

Back 2

is the full cost of buying merchandise for resale.

Front 3

Purchase allowance

Back 3

is a reduction in purchase price because the item has a defect or was the wrong item ordered.

Front 4

Purchase discount

Back 4

is a reduction in the initial cost of the merchandise. Usually, it is due to early payment of the debt.

Front 5

Transportation-in

Back 5

is the shipping cost paid by the buyer for merchandise. Note that this freight payment increases the cost of the merchandise. It is not an expense

Front 6

Cost of Merchandise

Back 6

is the cost of the merchandise sold to customer. It is usually figured out by Subtracting the sales and allowances and sales discount from purchase then adding the transportation in (increase the Merchandise Inventory)

Front 7

Net sales

Back 7

is determined by subtracting sales returns and allowances and sales discounts from sales

Front 8

Single step

Back 8

Groups all expenses in major categories
Subtracts total expenses from Net sales

Front 9

Multi-step

Back 9

Isolates Cost of Goods Sold
Subtracts CGS from Net sales to get Gross Profit

Front 10

FOB Destination

Back 10

seller pays freight costs and debits Transportation out (expense)

Front 11

FOB shipping

Back 11

buyer pays freight costs and debits Merchandise Inv.

Front 12

Dual nature

Back 12

Each transaction affects
Buyer
Seller

Front 13

SHRINKAGE

Back 13

Recorded inventory does not equal physical inventory
Requires correction

Front 14

Selling Expense

Back 14

expenses that are incurred directly in the selling of the merchandise
they include such expenses as salespersons' salaries, store supplies used, depreciation of store equipment, and advertising

Front 15

Administrative expenses

Back 15

expenses incurred in the administration or general operations of the business. also known as general expenses.
they include office salaries, depreciation of office equipment, and office supplies used.

Front 16

2/10, n/30 or n/eom

Back 16

means2% discount if paid within 10 days, net amount due within 30 days or at the end of the month.