Accounting Exam 3 - Chapters 5-7

Front 1

Merchandiser

Back 1

A business that sells merchandise, or goods to customers.

Front 2

Merchandise Inventory

Back 2

The Merchandise that a business sells to customers.

Front 3

Wholesaler

Back 3

A type of merchandiser that buys goods from manufacturers and then sells them to retailers.

Front 4

Retailer

Back 4

A type of merchandiser that buys merchandise from manufacturer or wholesaler and then sells those goods to consumers.

Front 5

Vendor

Back 5

The individual or business from whom a company purchases goods.

Front 6

Cost of Goods Sold (COGS)

Back 6

The cost of the merchandise inventory that the business has sold to customers.

Front 7

Gross Profit

Back 7

Excess of net sales revenue over cost of goods sold.

Front 8

Operating Expense

Back 8

Expenses, other than cost of goods sold, that are incurred in the entity's major ongoing operations.

Front 9

Periodic Inventory System

Back 9

An inventory system that requires businesses to obtain a physical count of inventory to determine quantities on hand.

Front 10

Perpetual Inventory System

Back 10

An inventory system that keeps a running computerized record of merchandise inventory.

Front 11

Invoice

Back 11

A sellers request for payment from the purchaser.

Front 12

Purchase Discount

Back 12

A discount that businesses offer to purchasers as an incentive for early payment.

Front 13

Credit Terms

Back 13

The payment terms of purchase or sale as stated on the invoice.

Front 14

Purchase Return

Back 14

A situation in which sellers allow purchasers to return merchandise that is defective, damaged or otherwise unsuitable.

Front 15

Purchase Allowance

Back 15

An amount granted to the purchaser as an incentive to keep goods that are not "as ordered".

Front 16

FOB Shipping Point

Back 16

Situation in which the buyer takes ownership of the goods after they leave the sellers place of business.

Front 17

FOB Destination

Back 17

Situation in which the buyer takes ownership of goods when they arrive at their destination. Seller typically pays the freight.

Front 18

Freight In

Back 18

The transportation cost to ship goods into the purchaser's warehouse; therefore, it is freight on purchased goods.

Front 19

Freight Out

Back 19

The transportation cost to ship goods out of the seller's warehouse; therefore, its freight on goods sold to a customer.

Front 20

Sales Revenue

Back 20

The amount that a merchandiser earns from selling its inventory.

Front 21

Sales Discounts

Back 21

Reduction in the amount of cash received from a customer for early payment.

Front 22

Sales Returns and Allowances

Back 22

Decreases in the seller's receivable from a customer's return of merchandise or from granting the customer an allowance from the amount owed to the seller.

Front 23

Inventory Shrinkage

Back 23

The loss of inventory that occurs because of theft, damage and errors.

Front 24

Single-Step Income Statement

Back 24

Income statement format that groups all revenues together and then lists and deducts all expenses together without calculating any subtotals.

Front 25

Multi-Step Income Statement

Back 25

Income statement format that contains subtotals to highlight significant relationships. In addition to net income, it reports gross profit and operating income.

Front 26

Selling Expenses

Back 26

Expenses related to marketing and selling the company's goods.

Front 27

Administrative Expenses

Back 27

Expenses incurred that are not related to marketing the company's goods or services.

Front 28

Operating Income

Back 28

Measures the results of the entity's major ongoing activities. Gross Profit - Operating Expense

Front 29

Income Tax Expense

Back 29

Expense incurred by a corporation related to federal and state income taxes.

Front 30

Gross Profit Percentage

Back 30

Measures the profitability of each sales dollar above the cost of goods sold. Gross Profit/Net Sales Revenue.

Front 31

Net Purchases

Back 31

Purchases less purchase returns and allowances less purchase discounts.

Front 32

Consistency Principle

Back 32

A business should use the same accounting methods and procedures from period to period.

Front 33

Disclosure Principle

Back 33

A business's financial statements must report enough information for outsiders to make knowledgable decisions about the company.

Front 34

Materiality Concept

Back 34

A company must perform strictly proper accounting only for items that are significant to the business's financial situation.

Front 35

Conservatism

Back 35

A business should report the least favorable figures in the financial statements when two or more possible options are presented.

Front 36

Inventory Costing Method

Back 36

A method of approximating the flow of inventory cost in a business that is used to determine the amount of cost of goods sold and ending merchandise inventory.

Front 37

Specific Identification Method

Back 37

An inventory costing method based on the specific cost of particular units of inventory.

Front 38

First in, First out (FIFO)

Back 38

An inventory costing method in which the first costs into inventory are the first costs out to cost of goods sold. Ending inventory is based on the costs of the most recent purchases.

Front 39

Cost of Goods Available for Sale

Back 39

The total cost spent on inventory that was available to be sold during a period.

Front 40

Last in, First Out (LIFO)

Back 40

An inventory costing method in which the last costs into inventory are the first costs out to cost of goods sold. The method leaves the oldest cost - those of beginning inventory and earliest purchases of the period - in ending inventory.

Front 41

Weighted-Average Method

Back 41

An inventory costing method based on the weighted-average cost per unit of inventory that is calculated after each purchase. Weighted-Average cost per unit is determined by dividing the cost of goods available for sale by the number of units available.

Front 42

Lower-Of-Cost-or-Market (LCM) rule

Back 42

Rule that merchandise inventory should be reported in the financial statements at whichever is lower-its historical cost or its market value.

Front 43

Inventory Turnover

Back 43

Measures the number of times a company sells its average level of merchandise inventory during a period. Cost of Goods Sold/ Average Merchandise Inventory

Front 44

Days' Sales in Inventory

Back 44

Measures the average number days that inventory is held by a company. 365 days/ Inventory Turnover

Front 45

Internal Control

Back 45

The organizational plan and all the related measures adopted by an entity to safeguard assets, encourage employees to follow company policies, promote operational efficiency and ensure accurate and reliable accounting records.

Front 46

Public Company

Back 46

A company that sells its stock to the general public.

Front 47

Sarbanes-Oxley Act

Back 47

Requires companies to review internal control and take responsibility for the accuracy and completeness of their financial reports.

Front 48

Internal Control Report

Back 48

A report by management describing its responsibilities for and the adequacy of internal controls over financial reports.

Front 49

Internal Auditor

Back 49

An employee of the business who ensures the company's employees are following company policies, that the company meets all legal requirement and that operations are running efficiently.

Front 50

External Auditor

Back 50

An outside accountant, completely independent of the business, who evaluates the controls to ensure that the financial statements are presented fairly in accordance with GAAP.

Front 51

Separation of Duties

Back 51

Dividing responsibilities between two or more people to limit fraud and promote accuracy of accounting records.

Front 52

Encryption

Back 52

Rearranging plain-text messages by mathematical process- the primary method of achieving security in e-commerce.

Front 53

Firewall

Back 53

A device that enables members of a local network to access the network while keeping nonmembers out of the network.

Front 54

Collusion

Back 54

Two or more people working together to circumvent internal controls and defraud a company.

Front 55

Remittance Advice

Back 55

An optional attachment to check that tells the business the reason for the payment

Front 56

Lock-Box System

Back 56

A system in which customers send their checks to a post office box that belongs to a bank. A bank employee empties the box daily and records the deposits into the company's bank account.

Front 57

Evaluated Receipts Settlement (ERS)

Back 57

A procedure that compresses the payment approval process into a single step by comparing the receiving report to the purchase order.

Front 58

Electronic Data Interchange (EDI)

Back 58

A streamlined process that bypasses paper documents altogether. Computers of customers communicate directly with the computers of suppliers to automate routine business transactions.

Front 59

Petty Cash

Back 59

A fund containing a small amount of cash that is used to pay for minor expenditures.

Front 60

Imprest System

Back 60

A way to account for petty cash by maintaining a constant balance in the petty cash account. At any time, cash plus petty cash tickets must total the amount allocated to the petty cash fund.

Front 61

Signature Card

Back 61

A card that shows each authorized person's signature for a bank account.

Front 62

Deposit Ticket

Back 62

A bank form that is completed by the customer and shows the amount of each deposit.

Front 63

Check

Back 63

A document that instructs a bank to pay the designated person or business a specified amount of money.

Front 64

Maker

Back 64

The party who issues the check.

Front 65

Payee

Back 65

The individual or business to whom the check is paid.

Front 66

Routing Number

Back 66

On a check, the 9-digit number that identifies the bank upon which the payment is drawn.

Front 67

Bank Reconciliation

Back 67

A document explaining the reasons for the difference between a depositor's cash records and the depositors cash balance in its bank account.

Front 68

Timing Difference

Back 68

Difference that arises between the balance on the bank statement and the balance on the company's books because of a time lag in recording transactions.

Front 69

Deposit in Transit

Back 69

A deposit recorded by the company but not yet by it's bank.

Front 70

Outstanding Check

Back 70

A check issued by a company and recorded on its books but not yet paid by its bank.

Front 71

Non Sufficient Funds Check

Back 71

A check for which the maker's bank account has insufficient money to pay the check.