Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
31 Cards in this Set
- Front
- Back
|
Merchandising Companies |
Buy goods to be resold for profit ex: walmart - Primary source of rev is referred to sales rev or sales *The operating cycle of a merchandising company ordinarily is longer than that of a service company* |
|
|
Cost of goods sold |
1) Determine cost of G at the beginning of the period 2) Add cost of G purchased 3) Subtract cost of G on hand at end of period |
|
|
Gross Profit formula & how to get to net income |
Sales rev - C.G.S = Gross profit - Gross profit - operating expense = net income/L |
|
|
Flow of cost |
Chart on page 231 |
|
|
Perpetual System (continous system)
|
-Record purchases of merchandises for sale in the inventory acct. - Freight out is an expense account and debited -Purchase returns/allowances is a credit to inventory and debit to accounts payable -Discounts are a credit to inventory *Inventory acct includes = purchases, discounts, purchases returns, freight in* |
|
|
Perpetual System Ex. |
-Svak stereo pays $3500 in 2/10 discount period Accounts payable 3500 Discount 70 Cash 3430 *If passing up a discount, it is paying interest -2% for use of 3500 for 20 days (.02 x 365/20)= 36.5% interest rate - Borrowing & from a bank is cheaper |
|
|
Perpetual system- sales returns/ allowances |
-Normal debit account -Contra account to sales rev -Decreases acts receivable (credit) -Debit to inventory -Credit to cost of goods sold |
|
|
Perpetual system ex Sales return/allowances |
EX: Returns $300 of G at cost of $140 Sales returns/allow 300 Acct Rec 300 Inventory 140 Cost of G sold 140 |
|
|
Periodic Inventory System |
-Do NOT attempt to record the cost of G sold on DATE OF SALE, at the end of accting period -Record purchases in the Purchase account rather than inventory account - Purchase return/allowances, discounts, and freight costs are recorded in separate accounts *Beginning inventory + purchases + goods available - ending inventory - cost of goods sold* |
|
|
Perpetual system advantages |
*Better control over inventories than periodic *Used for high valued items *Shows quantity and cost of inventory on hand at any time |
|
|
Recording Purchases of merchandise |
-Made using cash or credit -Normally record when goods are received from the seller -Purchase invoice should supply each credit purpose |
|
|
Shipping Point |
G are considered as ownership of the buy when the public carrier gets the G from the seller Seller --I-- Transportation ---- Buyer (ownership) |
|
|
Destination |
Ownership of the goods remains with the seller until the goods reach the buyer Seller--- Transportation --I-- Buyer (ownership) |
|
|
Purchase Returns |
Return the goods for credit if the sale was made on credit, or for cash refunds is bought with cash |
|
|
Purchase Account |
Like a expense account - normal debit balance |
|
|
Purchase allowance (reduction) |
May choose to keep the G id the seller grants a reduction of the purchase price |
|
|
Purchase returns/allowances and purchase discounts |
Contra purchase account -Normal credit account * When returning an item purchased, credit purchase returns and allowances account* |
|
|
Purchase discount(2/10 or n/30) "two-ten net-30" |
Credit terms may permit buyer to claim a cash discount for prompt payment *2% discount if paid in 10 days or no discount and pay in 30 days* *Don't take discount off of paid freight* Advantages- purchaser saves money - Seller receives cash sooner |
|
|
1) 1/10 EOM 2) N/10 |
1) 1% discount if paid within first 10 days of next month 2) Net amount due within first 10 days of next month |
|
|
Single step income statement |
Only subtracting total exp from total rev is required to find net income - A company does not realize any profit or income until total rev exceeds total exp |
|
|
Multi step income statement (3 line items) |
1) Subtract cost of G sold from net sales for gross profit
*Net sales - cost of G sold = Gross profit* 2) Deduct operating expenses from gross profit for income from operations *Gross profit- operating exp = income from operations* 3) Add/subtract results from activities to determine net income * (+) or (-) other rev/exp =net income * (-) income tax exp & patronage refunds * (+) other revs |
|
|
Gross profit (multistep) |
Represents the merchandising profit of a company - not a measure of overall profit bc exp still haven't been deducted |
|
|
Nonoperating activities |
Various rev and exp that are unrelated to the company's main line of operations -"Income from operations" - Interest rev / exp |
|
|
Profit Margin |
Measures the % of each dollar of sales that results in net income *Profit Margin= net income/net sales* INCREASE = GOOD |
|
|
Gross Profit Rate |
Expresses a more qualitative relationship between gross profit and net sales * Gross profit rate= gross profit / net sales |
|
|
Contra-sales account |
*Credit for retuned goods that had 300 selling price, cost was 140* Oct. 5- Inventory 140 Cost of good sold 140 Oct.5- Sales returns/ allowances 300 Accounts receivable 300 *Normal sales account- Sales rev- Credited *Contra sales rev acct- Sale returns/allowance- debited Sales discounts- debited |
|
|
Sales Discount |
Based on invoice price less returns/allowances -Contra Revenue Account Ex. $3500 G sold at 2/10 in discount period Cash 3430 Sales discount 70 Acct Rec. 3500 |
|
|
Net Sales Gross profit Net income |
*Net Sales= (Sales rev) - (sales returns) - (sales discount) -Sale returns and Sale discount are contra accts *Gross profit= Net sales - cost of goods sold - Not a measure of overall profit! Net Income= (Gross profit) - (operating exp)- (non operating exp) |
|
|
Non operating Expenses Non operating gains |
*Non-operatin exp: Interest exp & casualty exp (casualty exp is loss from vandalism) *Non-operatin gains: Interest rev & dividend rev |
|
|
Gross profit Rate |
*GPR= Gross profit/Net sales = (Sales rev - C.G.S) / Net sales SAME THING - Expresses a more meaningful relationship b/w gross profits and net sales than gross profit amt -Higher ratio suggests margin between selling price and inventory cost is increasing -Want higher ratio, but not to high |
|
|
Quality of earnings ratio |
QER= Net cash provided by oper act./Net income -Greater than 1 suggest companies delay recognition of income -Less than 1 means company is using aggressive acct techniques to accelerate income recg. -No definitive evidence of low-quality earnings though |
