Accounting 201

Front 1

what are merchandising companies

Back 1

they buy and sell merchandise rather than perform services as their primary source of revenue

Front 2

what are examples of merchandising companies

Back 2

REI, Wal-Mart and Amazon

Front 3

what are the two types of Merchandising companies

Back 3

-retailers

-wholesalers

Front 4

what is a retailer merchdansier

Back 4

merchandising companies that purchase and sell directly to consumers

Front 5

what is a wholesaler merchandiser

Back 5

merchandising companies that sell to retailers

Front 6

what is the primary source of revenues for merchandising companies

Back 6

the sale of merchandise known as sales revenue or sales

Front 7

what are merchandising companies two categories of expenses

Back 7

-cost of goods sold

-operating expenses

Front 8

cost of goods sold

Back 8

is the total cost of merchandise sold during the period

Front 9

what is the cost of goods expense directly related to?

Back 9

the revenue recognized from the sale of goods

Front 10

what two items are uniwue to a merchandising company; they are not used by a service company

Back 10

-cost of goods sold

-gross profit

Front 11

Is the operating cycle of a merchandising company usually longer than that of a service company?

Back 11

yes

Front 12

what is the added asset account for a merchandising company

Back 12

inventory

Front 13

what do companies report inventory as on a balance sheet

Back 13

a current asset

Front 14

what is the operating cycle for a merchandising company?

Back 14

cash>buy inventory>inventory>sell inventory>accounts receivable>mail> receive cash>cash

Front 15

what is the flow of costs for a merchandising company?

Back 15

beginning inventory plus the cost of goods purchased is the cost of goods available for sale. As goods are sold, they are assigned to cost of goods sold. those gods are not sold by the end of the accounting period represent ending inventory.

Front 16

what are the two ways companies use for inventory?

Back 16

perpetual inventory system and periodic inventory system

Front 17

perpetual inventory system

Back 17

companies keep detailed records of the cost of each inventory purchase and sale, these records continuously-perpetually- show inventory that should be on hand for every item. under perpetual inventory system, a company determines the cost of goods sold each time a sale occurs

Front 18

what is an example of perpetual inventory ?

Back 18

a ford dealership has seperate inventory records for each automobile, trucks and van on its own lot and showroom floor.

Front 19

periodic inventory system

Back 19

companies do not keep detailed inventory records of the goods on hand through out the period. instead they determine the cost of goods sold only at the end of the accounting period- that is periodically. at this point the company takes a physical inventory count to determine the cost of goods on hand

Front 20

what are the three steps of the periodic inventory system to determine the cost of goods sold

Back 20

1.determine the cost of goods sold on hand at the beginning of the accounting period

2.add to it the cost of goods purchased

3.subtract the cost of goods on hand at the end of the accounting period

Front 21

what types of companies use the perpetual system?

Back 21

companies that sell merchandise with high unit values such as automobiles, furniture, major home appliances

Front 22

why is the perpetual system named so?

Back 22

because the accounting records continuously show the quantity and cost of the inventory that should be on hand at any time

Front 23

does the perpetual or periodic system provided more control

Back 23

perpetual

Front 24

how do companies purchase inventory

Back 24

using cash or credit (on account)

Front 25

when do companies usually record purchases

Back 25

when they receive the goods from the seller

Front 26

how do companies record cash purchases ?

Back 26

by an increase in inventory and a decrease in cash

Front 27

purchase invoice

Back 27

indicates the total purchase price and other relevant information

Front 28

what should a purchase invoice do?

Back 28

it should support each credit purchase

Front 29

what does the purchaser do since they do not prepare a separate purchase invoice?

Back 29

the purchaser uses a purchase invoice a copy of the sales invoice sent by the seller

Front 30

what is the journal transaction if Sauk stero has made a purchase from PW audio supply

Back 30

the entry increases (debits) inventory and increases (credits) accounts payable

Front 31

using the perpetual system would a company increase (debit) inventory for clothing, sporting goods, and anything else purchased for resale to costumers?

Back 31

yes yes yes

Front 32

using the perpetual system what purchases are not debited to inventory?

Back 32

companies record purchases of assets acquired for use and not for resale such as supplies, equipment, and similar items as increases to specific asset accounts rather than to inventory

Front 33

Freight terms are expressed as one of two things

Back 33

FOB shipping point or FOB destination

Front 34

FOB means

Back 34

Free on board

Front 35

FOB Shipping means

Back 35

that the seller places the goods free on board the carrier, and the buyer pays the freight costs

Front 36

FOB destination means

Back 36

that the seller places the goods free on board to the buyers place of business, and the seller pays freight

Front 37

what is the journal entry when the buyer incurs the transportation costs, these costs are considered part of the cost of purchasing inventory ....

Back 37

therefore the buyer debits (increases) the inventory account

Front 38

what are freight costs incurred by the seller on outgoing merchandise?

Back 38

they are an operating expense to the seller

'these costs increase an expense account titled freight out or delivery expense'

Front 39

purchase return

Back 39

the purchaser may return the goods to the seller for a cash refund if the purchase was made in cash or credit if the purchase was made with credit

Front 40

what is an alternative to returning damaged merchandise

Back 40

an allowance or deduction if the seller is willing to give one known as a purchase allowance

Front 41

purchase discount

Back 41

the credit terms of a purchase on account may permit the buyer to claim a cash discount for prompt payment

Front 42

how does a purchase discount benefit both buyer and seller

Back 42

the purchaser saves money and the seller is able to shorten the operating cycle by converting the accounts receivable into cash

Front 43

credit terms

Back 43

specify the amount of the cash discount and time period in which it is offered. They also indicate the time period in which the purchaser is expected to pay the full invoice price

Front 44

n/10 n/30 n/60 EOM

Back 44

this means, that the buyer must pay the net amount in 30 days, 60 day, or within the first 10 days of the next month

Front 45

why when the buyer pays an invoice within the discount period, the amount of the discount decreases inventory?

Back 45

because companies record inventory at cost, and by paying within the discount period, the buyer has to reduce its cost.

Front 46

what can passing up the discount be viewed as?

Back 46

paying interest

Front 47

when do companies record sales revenue

Back 47

when the performance obligation is satisfied; the performance is satisfied when the goods transfer from the seller to the buyer

Front 48

business document

Back 48

should support every sales transaction, to provide written evidence of the sale

Front 49

cash register documents

Back 49

provide evidence of cash sales

Front 50

sales invoice

Back 50

provides support for a credit sale; the orignal copy of the invoice goes to the costumer, and the seller keeps a copy for use in recording the sale.

Front 51

what does a sales invoice show on it ?

Back 51

the date of the sale, customer name, total sales price, and other relevant information

Front 52

what are the two entries that a seller makes for each sale?

Back 52

1. records the sale

2.records the cost of the sale

Front 53

what is the journal entry for the first entry of a sale?

Back 53

the seller increases (debits) cash (or accounts receivable if a credit sale) and also increases (credits) sales revenue

Front 54

what is the journal entry for the second entry of a sale?

Back 54

the seller increases (debits) cost of goods sold and also decreases (credits) inventory for the cost of those goods

Front 55

sales returns and allowances

Back 55

these are transactions where the seller either accepts goods back from the buyer (a return) or grants a reduction in the purchase price (an allowance) so the buyer will keep the goods.

Front 56

contra revenue account

Back 56

sales returns and allowances; this means that it is offset against a revenue account on the income statement

Front 57

what is the normal balance of a sales returns and allowances

Back 57

a debit

Front 58

why do companies use a contra account instead of debiting sales revenue?

Back 58

to dis-close in the accounts and in the income statement the amount of sales returns and allowances

Front 59

what may excessive returns and allowances suggest?

Back 59

problems-inferior merchandise, ineffcienices in filling orders, errors in billing customers, or delivery

Front 60

sales discount

Back 60

is based on the invoice price less returns and allowances. This is a cash discount offered by the seller.

Front 61

what is the journal entry in a sellers books if a sales discount is offered

Back 61

the seller increases (debits) the sales discounts account for discounts that are taken under the amount of cash being received then crediting accounts receivable

Front 62

is sales discounts a contra revenue account?

Back 62

yes

Front 63

why does a merchandising company require one additional adjustment entry?

Back 63

because the companys unadjusted balance in inventory usually does not agree with the actual amount of inventory on hand

Front 64

what is the journal entry if a company has an unadjusted balance of $40,500 in inventory. through a physcial count the company determines its actual merchandise inventory is 40,000

Back 64

the company would debit 'cost of goods sold' by 500 and credit 'inventory' by 500. this is to adjust inventory to physical count

Front 65

what does a merchandising company close?

Back 65

closes to income summary all accounts that affect net income

Front 66

in journalizing what does the company do

Back 66

the company credits all temporary accounts with debit balances and debits all temporary accounts with credit balances

Front 67

Sales transactions

-selling merchandise to customers

Back 67

debit: cash or accounts receivable

Credit: Sales revenue

Front 68

Sales Transactions

-granting sales returns or allowances to customers

Back 68

debit: Sales returns and allowances

credit: Cash or accounts receivable

Front 69

Sales transactions

-paying freight costs on sales; FOB destination

Back 69

debit: Freight-out

credit: Cash

Front 70

Sales Transactions

-receiving payment from customers within discount period

Back 70

Debit:cash and sales discount

Credit: accounts receivable

Front 71

Purchase Transactions

-Purchasing merchandise

Back 71

Debit: inventory

Credit: cash or accounts payable

Front 72

Purchase Transactions

-paying freight costs on merchandise purchased; FOB shipping point

Back 72

Debit: inventory

Credit: cash

Front 73

Purchase Transactions

-receiving purchase returns or allowances from suppliers

Back 73

debit: cash or accounts payable

Credit: inventory

Front 74

Purchase Transactions

-paying suppliers within discount period

Back 74

debit: Accounts payable

Credit: Inventory and cash

Front 75

multiple -step income statement

Back 75

it shows several steps in determining net income. Two of these steps relate to the companys principal operating activites

Front 76

what does a multiple step statement distinguish between?

Back 76

Operating and Non operating activities

Front 77

where does the multiple step income statement begin?

Back 77

sales revenue

Front 78

on a multiple step income statement what is the step after the sales revenue

Back 78

to deduct contra revenue accounts; sales revenue and allowances and sales discounts.

After deducting this you will arrive at net sales

Front 79

Gross profit

Back 79

companies deduct cost of goods sold from sales revenue

Front 80

Gross profit rate

Back 80

divide the amount of gross profit by net sales

Front 81

what is more useful the gross profit rate or the gross profit amount?

Back 81

rate

Front 82

merchandising profit

Back 82

gross profit represents this and it is not a measure of the overall profitability because operating expenses are not yet deducted

Front 83

operating expenses

Back 83

are the next component in measuring net income. they are expenses incurred in the process of earning sales revenue.

Front 84

how does a company determine net income

Back 84

by subtracting operating expenses from gross profit.

Front 85

non-operating activities

Back 85

consist of various revenues and expenses and gains and losses that are unrelated to the company's main line of operations.

Front 86

income operations

Back 86

when non-operating items are included this is the label. the amount is determined by subtracting cost of goods sold and operating expenses from net sales

Front 87

what categories are the results of non-operating activities shown in

Back 87

-other revenues and gains

-other expenses and losses

Front 88

what are four examples of other revenues and gains

Back 88

-interest revenue

-dividend revenue

-rent revenue

-gain

Front 89

what are examples of other expenses and losses

Back 89

-interest expense

-casualty losses

-loss

Front 90

single step income statement

Back 90

only one step- subtracting total expenses from total revenues is required in determining net income

Front 91

what do merchandising companies report inventory as ?

Back 91

current asset