Accounting

Front 1

Merchandising firms...

Back 1

buy merchandise to sell to their customers

Front 2

Cost of goods sold

Back 2

total cost of the merchandise sold during a period of time

Front 3

gross profit

Back 3

sales revenue - cost of goods sold

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FOB Shipping point

Back 4

the buying firm pays to have the goods shipped. Once at shipping point buyer has legal title

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FOB destination

Back 5

vendor pays the shipping cost and has title til reaches the seller

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Sales revenue

Back 6

recorded when goods are transferred from the seller to the buyer

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Sales returns and allowances

Back 7

an account that holds ammount that reduce sales due to customer returns or allowances due to damaged merchandise. This account is contra revenue

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contra revenue account

Back 8

sales returns and allowances. an account that is an offset to the revenue account.

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sales discounts

Back 9

reductions in the sales price of a product for prompt payment. Sales discounts are calculated after sales returns and allowances

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freight cost

Back 10

operating expense of the seller labeled freight out

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single step income statement

Back 11

all revenues are presented first and all expenses include cogs then all subtracted in one step to get the net income

Front 12

multiple step income statement

Back 12

highlights the components of net income

Front 13

steps to a multiple step income statement

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sales
-sales returns and allowances
-sales discount
= net sales
- cogs
= gross profit
- operating expense
=income from operations
-other expenses
+other revenue
=net income

Front 14

Payment terms example:

2/10, net 30

Back 14

2% discount if payment is received within 10 days if not payment due in 30 days of transaction

Front 15

what are two contra revenue accounts?

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sales discount
sales returns and allowances

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gross profit

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sales revenue
- discounts, returns, and allowances
- cogs

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operating expenses

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freight, salary, ect

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gross profit ratio

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gross profit/net sales

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profit margin ratio

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net income/ net sales

measures the extent by which the selling price exceeds cost of goods sold

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how can a company improve profit margin ratio?

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increase gross profit
control operating expenses

Front 21

two characteristics of inventory

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they are owned by the company, they are ready to sell to the customers

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when do companies need to determine inventory?

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end of accounting period

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what two steps are required in determining inventory quantities

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1. taking a physical count
2. determine ownership of goods

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consigned goods

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owner places them somewhere besides store and warehouse for sale. consignor = owner consignee = place

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specific identification of goods

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inventory cost flow method in which the actual cost of the specific goods is recorded as the cogs

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FIFO

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first in first out.
for increasing goods, cogs is lowest and ending inv is highest
for decreasing goods, cogs is highest and ending inv is lowest

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LIFO

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last in first out
for increasing goods, cogs is highest and ending inv is lowest

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weighted average

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average of cost of goods available for sale

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why is higher income an advantage?

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external users view more favorably, and management bonuses. companies tend to use FIFO

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lifo tax rule

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if a company uses lifo to reduce its tax bills then must also use lifo to show lower net income

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inventory turnover ratio

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cogs/average inventory

average inventory = beg = end /2

how many time the entire inv turns over

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days in inventory

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365/inventory turn over ratio

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the factor which determines whether or not goods should be included in a physical count of inventory is...

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legal title

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if goods in transit are ship fob destination...

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the seller has legal title until the goods are delivered

Front 35

the specific identification cost flow assumption is most appropriate for companies that produce which type of product?

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large items such as airplanes

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goods held on consignment are

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never owned by the consignee

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the lifo inventory method assumes that the cost of the latest units purchased are...

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the first unites sold

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sales revenue less the cogs equals...

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gross profit

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positive operating income will result if gross profit exceeds

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other revenues/gains

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what is the advantage of a multiple step income statement...

Back 40

it highlights the components of net income

Front 41

freight cost incurred by the seller would appear where

Back 41

operating expense