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16 Cards in this Set

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Gross profit
Net sales – Cost of Goods Sold
Purchases
is the full cost of buying merchandise for resale.
Purchase allowance
is a reduction in purchase price because the item has a defect or was the wrong item ordered.
Purchase discount
is a reduction in the initial cost of the merchandise. Usually, it is due to early payment of the debt.
Transportation-in
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
Cost of Merchandise
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)
Net sales
is determined by subtracting sales returns and allowances and sales discounts from sales
Single step
Groups all expenses in major categories
Subtracts total expenses from Net sales
Multi-step
Isolates Cost of Goods Sold
Subtracts CGS from Net sales to get Gross Profit
FOB Destination
seller pays freight costs and debits Transportation out (expense)
FOB shipping
buyer pays freight costs and debits Merchandise Inv.
Dual nature
Each transaction affects
Buyer
Seller
SHRINKAGE
Recorded inventory does not equal physical inventory
Requires correction
Selling Expense
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
Administrative expenses
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.
2/10, n/30 or n/eom
means2% discount if paid within 10 days, net amount due within 30 days or at the end of the month.