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41 Cards in this Set

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Merchandising firms...
buy merchandise to sell to their customers
Cost of goods sold
total cost of the merchandise sold during a period of time
gross profit
sales revenue - cost of goods sold
FOB Shipping point
the buying firm pays to have the goods shipped. Once at shipping point buyer has legal title
FOB destination
vendor pays the shipping cost and has title til reaches the seller
Sales revenue
recorded when goods are transferred from the seller to the buyer
Sales returns and allowances
an account that holds ammount that reduce sales due to customer returns or allowances due to damaged merchandise. This account is contra revenue
contra revenue account
sales returns and allowances. an account that is an offset to the revenue account.
sales discounts
reductions in the sales price of a product for prompt payment. Sales discounts are calculated after sales returns and allowances
freight cost
operating expense of the seller labeled freight out
single step income statement
all revenues are presented first and all expenses include cogs then all subtracted in one step to get the net income
multiple step income statement
highlights the components of net income
steps to a multiple step income statement
sales
-sales returns and allowances
-sales discount
= net sales
- cogs
= gross profit
- operating expense
=income from operations
-other expenses
+other revenue
=net income
Payment terms example:

2/10, net 30
2% discount if payment is received within 10 days if not payment due in 30 days of transaction
what are two contra revenue accounts?
sales discount
sales returns and allowances
gross profit
sales revenue
- discounts, returns, and allowances
- cogs
operating expenses
freight, salary, ect
gross profit ratio
gross profit/net sales
profit margin ratio
net income/ net sales

measures the extent by which the selling price exceeds cost of goods sold
how can a company improve profit margin ratio?
increase gross profit
control operating expenses
two characteristics of inventory
they are owned by the company, they are ready to sell to the customers
when do companies need to determine inventory?
end of accounting period
what two steps are required in determining inventory quantities
1. taking a physical count
2. determine ownership of goods
consigned goods
owner places them somewhere besides store and warehouse for sale. consignor = owner consignee = place
specific identification of goods
inventory cost flow method in which the actual cost of the specific goods is recorded as the cogs
FIFO
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
LIFO
last in first out
for increasing goods, cogs is highest and ending inv is lowest
weighted average
average of cost of goods available for sale
why is higher income an advantage?
external users view more favorably, and management bonuses. companies tend to use FIFO
lifo tax rule
if a company uses lifo to reduce its tax bills then must also use lifo to show lower net income
inventory turnover ratio
cogs/average inventory

average inventory = beg = end /2

how many time the entire inv turns over
days in inventory
365/inventory turn over ratio
the factor which determines whether or not goods should be included in a physical count of inventory is...
legal title
if goods in transit are ship fob destination...
the seller has legal title until the goods are delivered
the specific identification cost flow assumption is most appropriate for companies that produce which type of product?
large items such as airplanes
goods held on consignment are
never owned by the consignee
the lifo inventory method assumes that the cost of the latest units purchased are...
the first unites sold
sales revenue less the cogs equals...
gross profit
positive operating income will result if gross profit exceeds
other revenues/gains
what is the advantage of a multiple step income statement...
it highlights the components of net income
freight cost incurred by the seller would appear where
operating expense