Chapter 4 And 5 Accounting

Front 1

How does a merchandiser earn net income?

Back 1

By buying and selling goods (merchandise).

Front 2

What is the difference between a wholesaler and a retailer business?

Back 2

A wholesaler buys products from a manufacturer or other wholesaler and then sells them to another wholesaler or retailer. A retailer buys products to sell to consumers.

Front 3

Net sales - Cost of goods sold =

Back 3

Gross Profit or Gross Margin

Front 4

Gross profit - Operating expenses =

Back 4

Net Income

Front 5

A merchandiser reports inventory as a ______ on the balance sheet.

Back 5

Asset

Front 6

The cost of inventory reported includes:

Back 6

- Cost of the product
- Cost of shipping
- Cost of preparing goods for sale

Front 7

Operating Cycle - Merchandiser

Back 7

Purchase inventory > credit sale > collect cash

Front 8

Inventory available for sale=

Back 8

Beginning inventory + net cost of purchases

Front 9

Perpetual Inventory System

Back 9

Continuously updates merchandise transactions in the accounting records.

Front 10

Periodic Inventory System

Back 10

Updates the accounting records for merchandise transactions only at the end of a period.

Front 11

Trade Discounts

Back 11

Discounts off the catalogue price (list price)

Front 12

Purchase Discounts

Back 12

Cash discounts to encourage the buyer to pay quickly

Front 13

Credit terms: 2/10 n/30

Back 13

2% discount if buyer pays within 10 days of the invoice date. Otherwise, the full amount is due in 30 days.

Front 14

Purchase Discount

Back 14

A reduction in the cost of unacceptable or defective goods.

Front 15

The buyer issues a debit memorandum to inform the seller-

Back 15

The accounts payable and the merchandise inventory accounts are reduced.

Front 16

The point of transfer is called..

Back 16

The FOB point

Front 17

FOB shipping point-

Back 17

Buyer accepts ownership when goods depart sellers' place of business; buyer pays shipping costs. Shipping costs increase the cost of inventory purchased.

Front 18

FOB destination-

Back 18

Ownership of goods transfers to buyer when goods arrive at buyers' place of business; seller pays shipping costs.

Front 19

A sales discount is a ________ _________ account.

Back 19

Contra-revenue

Front 20

Sales Allowances

Back 20

Reductions in the selling price of merchandise sold to customers for damaged or defective goods

Front 21

Inventory Shrinkage

Back 21

Term used to refer to loss of inventory. Compare physical counts with recorded amounts. Losses could be due to theft or deterioration.

Front 22

Acid-Test Ratio definition:

Back 22

Used to assess a company's liquidity or its ability to pay its current liabilities. Excludes less liquid assets.

Front 23

Acid Test Ratio Formula

Back 23

Quick Assets/Current Liabilities.. AKA Cash+ST Investments+Recievables/ Current Liabilities

Front 24

Gross Margin Ratio Definition

Back 24

Used to asses profitability before considering operating expenses.

Front 25

Gross Margin Ratio

Back 25

Net Sales- Cost of goods sold/ Net sales

Front 26

Goods in transit

Back 26

If ownership has passes to the purchaser, the goods are included in the purchasers inventory

Front 27

Goods on consignment

Back 27

Goods shipped by the owner (consignor) to another party (consignee).

Front 28

Consignee

Back 28

Person who sells goods for the owner

Front 29

Consignor

Back 29

The owner still owns the goods even though the goods aren't in their possession.

Front 30

Net Realizable Value

Back 30

Sales price-cost of making the sale

Front 31

The Cost of an Inventory Item Includes:

Back 31

- Invoice cost - any discount
- Costs to put in a place
- Condition for sale

Front 32

The matching principle

Back 32

States that inventory costs should be recorded against revenue in the period when inventory is sold

Front 33

Beginning Inventory + Net Purchases =

Back 33

Cost of goods available for sales

Front 34

First in, first out FIFO

Back 34

Assigns costs bases on the assumption that the inventory items are sold in the order purchased.

Front 35

Last in, first out LIFO

Back 35

Assumes that the most recent purchases are sold first.

Front 36

Weighted Average:

Back 36

Assumes costs flow in an average of the costs available.

Front 37

Weighted Avg. Formula is..

Back 37

Cost of inventory available for sale/# of units available for sale

Front 38

Specific Identification

Back 38

Requires that each item in an inventory be assigned its actual invoice cost

Front 39

Cost of goods available for sale=

Back 39

Cost of goods sold + ending inventory

Front 40

Inventory is reported on the ___________ ______.

Back 40

Balance sheet

Front 41

Consistency Principle

Back 41

Requires use of same accounting methods period after period so the financial statements are comparable across periods

Front 42

Full Disclosure Principle

Back 42

Requires statement notes report type of change, its justification, and it's affect on net income.

Front 43

Accounting priciples require that inventory be reported on the balance sheet at the...

Back 43

LCM, lower of cost or market.

Front 44

LCM is based on the..

Back 44

Conservation principle

Front 45

Inventory turnover is used to measure..

Back 45

How quickly a company sells its inventory and can affect a merchandiser's ability to pay its short term obligations.

Front 46

Inventory turnover is calculated by:

Back 46

Cost of goods sold/ Average Inventory

Front 47

Day's sales in inventory measures..

Back 47

How much inventory is available in terms of the number of days' sales.

Front 48

Day's sales is calculated by:

Back 48

Ending inventory/Cost of goods soldx365