Principles Of Accounting - Chapter 5 Terms

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Compound Journal Entry

Back 1

A journal entry affecting more than two accounts; an entry that has more than one debit and/or more than one credit.

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Cost of Goods Sold

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

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Credit Memorandum

Back 3

A document that supports the return of goods from the customer and the adjustment to the customer's account balance.

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Credit Terms

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The parment terms for customers who buy on account.

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Debit Memorandum

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A document that supports the return of goods to the supplier and the adjustment to the balance owed to the supplier.

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Discount Period

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Period in which the buyer can make early payment for a purchase and receive a discount on that purchase.

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EOM

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Credit term specifying that payment for a purchase is due by the end of the month. Also referred to as n / eom.

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FOB Destination

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Shipping term specifying that title to goods passes to the buyer when the goods are received at buyer's destination; thus, the seller pays the cost of shipping the goods to this destination.

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FOB Shipping Point

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Shipping term specifying that title to goods passes to the buyer when the goods are shipped at the seller's place of business; thus the buyer pays the cost of shipping the goods to its location.

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Freight

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The cost of shipping merchandise from the seller to the buyer.

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General and Administrative Expenses

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Office expenses, such as the salareies of the company president and office employees, depreciation of items used in administration, rent, utilities, and property taxes on the office building.

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Gross Margin

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Net sales revenue minus cost of goods sold. Also called gross profit.

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Gross Margin Percentage

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A measure of profitability equal to gross margin divided by net sales revenue. Also called gross profit percentage.

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Gross Profit

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Net sales revenue minus cost of goods sold. Also called gross margins.

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Gross Profit Percentage

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A measure of profitability equal to gross profit divided by net sales revenue. Also called gross margin percentage.

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Income From Operation

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Gross profit minus operating expenses. Also called operating income.

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Inventory

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All the goods purchased for resale to customers in the normal course of merchandising operations. Also called merchandise inventory.

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Inventory Turnover

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The ratio of cost of goods sold to average inventory. Measure the number of times a company sells its average level of inventory during a year.

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Merchandise Inventory

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All the goods purchased for resale to customers in the normal course of merchandising operations. Also called inventory.

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Multistep Income Statement

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Income statement format that calculates net income or net loss by listing important subtotals such as gross profit and operating income.

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n/30

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Credit term specifying that payment for a purchase is due within 30 days after the date of the income.

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n/eom

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Credit term specifying that payment for a purchase is due by the end of the month. Also referred to as eom.

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Net Sales Revenue

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Sales revenue less sales discounts and sales returns and allowances.

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Operating Expenses

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Expenses of operating a business other than cost of goods sold. Examples include depreciation, rent, salaries, utilities, advertising, delivery expenses, property taxes, and supplies expense.

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Operating Income

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Gross profit minus operating expenses. Also called income from operations.

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Other Revenues and Expenses

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Revenue and expenses that fall outside the main operations of a business, such as interest expense and a loss on the sale of long-term assets.

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Periodic Inventory System

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An inventory system in which the business does not keep a continuous record of inventory on hand. At the end of the period, a physical count of inventory is taken and determines the inventory owned as well as the cost of the goods sold.

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Perpetual Inventory System

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An inventory system in which the business keeps a continuous record of inventory owned and the cost of the goods sold.

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Purchase Discount

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Discount received on purchases by paying early cash within a discount period.

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Purchase Returns and Allowances

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A reduction in the amount owed for a purchase from returning merchandise or accepting damaged goods.

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Sales Discount

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Discount granted on sales for the customer's early payment within a discount period; a contra-account to Sales Revenue.

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Sales Invoice

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A bill that documents the sale of goods to a business customer.

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Sales Returns and Allowances

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A reduction in the amount of customer sales from returning merchandise or accepting damaged goods; a contra-account to Sales Revenue.

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Sales Revenue

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The amount that a retailer earns from selling its inventory.

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Selling Expenses

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Expenses related to advertising and selling products including sales salaries, sales commissions, advertising, depreciation on items used in sales, and delivery expense.

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Single-Step Income Statement

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Income statement format that groups all revenues together and lists all expenses together, subtracting total expenses from total revenues and calculating net income or net loss without computing any subtotals.

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Subsidiary Ledger

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An accounting record that contains details, such as a list of customers and the accounts receivable due from each, or a list of suppliers and the accounts payable due to each.

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Supply Chain

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The chain of transactions between businesses that supply goods and the customers who ultimately use them.

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Title

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Ownership

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Wholesales

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Businesses that buy goods from manufacturers and resell them to retailers.