Acct

Front 1

How do you find COGS?

Back 1

Sales minus the expense

Front 2

gross profit

Back 2

the expense of buying and preparing the merchandise

Front 3

How do you find Net Income?

Back 3

Gross Profit - expenses

Front 4

A merchandiser's balance sheet is the same as service business except for one additional current asset

Back 4

merchandise inventory

Front 5

merchandise inventory

Back 5

The cost of this asset includes the cost incurred to buy the goods, ship them to the store, and make them ready for sale.

Front 6

Operating Cycle

Back 6

begins by purchasing merchandise and ends by collecting cash from selling the merchandise.

Front 7

Merchandise “Available” for sale consists of what a company begins with (beginning inventory) and

Back 7

what it purchases (net cost of purchases). The merchandise available is either sold (cost of goods sold) or kept for future sales (ending inventory)

Front 8

Two alternative inventory systems are used to collect information about cost of goods sold and the inventory

Back 8

Perpetual inventory system
Periodic inventory system

Front 9

Perpetual inventory system

Back 9

continually updates accounting records for merchandise transactions (what came in, what went out)

Front 10

Periodic inventory system

Back 10

updates the accounting records for merchandise transactions only at the end of a period. Periodic systems record only the revenue aspect of each sales-related event. Inventory is updated and Cost of Goods Sold is determined only at the end of the accounting period by physically counting inventory and assigning the cost of missing inventory to Cost of Goods Sold.

Front 11

selling price equals

Back 11

list price minus trade discount.

Front 12

The time before full payment is due is called

Back 12

credit period

Front 13

Sellers can grant a cash discount to encourage the buyer to

Back 13

pay earlier

Front 14

A buyer views a cash discount as a

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purchases discount.

Reduced payment applies only for the discount period.

Front 15

Purchase returns

Back 15

refer to merchandise a buyer acquires but then returns to the seller.

Front 16

purchase allowance

Back 16

reduction in cost granted on merchandise that is defective or unacceptable.

Front 17

freight-in

Back 17

Shipping costs when purchasing goods Increase the cost of merchandise acquired (cost principle).

Front 18

freight–out

Back 18

Costs incurred when shipping to a customer are an operating (selling) expense for seller (and are NOT considered part of the cost of the seller’s merchandise).

Front 19

Each sales transaction involves two parts

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Recognize sale, the entry (for seller) to record revenue

Recognize cost, the entry (for seller) to record the expense

Front 20

What does "Contra" mean?

Back 20

subtract

Front 21

Sales Returns & Allowances is a contra -revenue account

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it is subtracted from Sales when computing a company’s net sales.

Front 22

Sales Returns & Allowances are monitored to assess

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sales satisfaction and merchandise quality.

Front 23

A multiple-step income statement has three main parts:

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a. Gross profit—net sales minus cost of goods sold

b. Operating Income—gross profit less operating expenses

c. Net Income—income from operations adjusted for nonoperating items.

B and C are none routine things that happen. They are “fluky” items. For us, it’s the same thing.

Front 24

Operating expenses are classified into two sections

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selling expenses—the expenses of promoting sales, making sales, and delivering goods to customers

administrative expenses—expenses related to accounting, human resource management, and financial management

Front 25

Nonoperating activities—consist of other expenses, revenues, losses, and gains that are unrelated to a company’s operations; reported in two sections

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Other revenues and gains—interest revenue, dividend revenue, rent revenue, and gains from asset disposals.
b. Other expenses and losses—interest expense, losses from asset disposals, and casualty losses.

Front 26

single-step income statement includes

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cost of goods sold as an operating expense and shows only one subtotal for total expenses, one subtraction to arrive at net income.

Front 27

acid-test ratio

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used to assess the company's liquidity or ability to pay its current debts; differs from current ratio by excluding less liquid current assets

Front 28

Goods on Consignment

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goods shipped by the owner, called the consignor, to another party, the consignee, who will try to sell the goods for the owner. The consignor continues to own the consigned goods and reports them in its inventory

Front 29

The cost of inventory includes

Back 29

invoice cost minus any discounts, or returns and allowances plus any added or incidental costs (such as import duties, freight-in, storage, and insurance).

Front 30

The Matching principle states

Back 30

that inventory costs should be recorded against revenue in the period when inventory is sold. Some companies use the materiality principle (cost-to-benefit constraint) to avoid assigning incidental costs to inventory.

Front 31

Specific identification

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As sales occur, cost of goods sold is charged with the actual invoice cost, leaving actual costs of inventory in the inventory account.

Front 32

First-in, first-out (FIFO

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As sales occur, FIFO charges costs of the earliest units acquired to cost of goods sold, leaving costs of most recent purchases in inventory.

Front 33

Last-in, first-out (LIFO

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As sales occur, LIFO charges costs of the most recent purchase to cost of goods sold, leaving costs of earliest purchases in inventory