Acc 101_I02 Chapter 5

Debit memorandum

Informs the seller of the amount the buyer proposes to debit to the account payable due the seller

When the physical inventory on hand at the end of the accounting period is less than the balance of inventory, the difference is known as

Inventory shrinkage

Gross profit (1)

Is computed by subtracting the cost of merchandise sold from net sales. (1)

Income from operations

Is determined by subtracting operating expenses from gross profit.

Stylon Co. a women's clothing store, purchased $25,000 of merchandise from a supplier on account, terms FOB destination, 2/10, n/30, using the net method under a perpetual inventory system. Stylon returned merchandise with an invoice amount of $3800 receiving a credit memo

Journalize stylon entry to record the purchase [25,000-(25,000x2%)]=24,500 Inventory 24,500 (debit) Accounts payable 24,500 (credit) Journalize stylon entry to record the merchandise return [3800-(3800x2%)]=3724 Accounts payable 3724 (debit) Inventory (credit) Journalize stylon entry to record the payment within the discount period 10 days 24,500-3724=20,776 Accounts payable 20,776 (debit) Cash 20,776 (credit)

Merchandise inventory

Merchandise on hand (not sold) at the end of an accounting period.

Merchandise costs consists of all the cost of acquiring the merchandise and readying it for sale, such as

Purchase and freight costs

Purchases return involves

Returning merchandise that is damaged or does not meet the specifications of the order

The cost of merchandise sold is

Subtracted from sales to arrive at gross profit. It is the profit before deducting operating expenses. Sales-cost of merchandise sold=gross profit Gross profit- operating expenses= net income

Under the perpetual inventory system

The amounts of inventory purchased, available for sale and sold aré continuously updated in the inventory records

Credit period

The buyer is allowed an amount of time

When merchandise is sold, the revenue is reported as sales and its cost is recognized as an expense called:

The cost of goods sold

Expense account is

The cost of merchandise sold

Credit terms

The terms for when payments for merchandise are to be made 2/10, n/30, 1/15, n/eom, etc

Sales is

The total amount charged to customers for merchandise sold, including cash sales and sales on account

Cost of merchandise sold

When merchandising is sold, the revenue is repirted as sales and its cost is recognized as an expense

Purchased $4000 of merchandise on account from gamma co. Terms 2/10, n/30 Returned $2000 of the merchandise purchased on apr 2 Paid fir the purchase of April 2 less the return and discount The purchase amount that Icon co. Would record on Apr 2

4000 x 2%=80 4000-80=3920 $3920

Purchases discounts

A buyer may receive a discount from the seller (sales discount) for early payment of the amount owed

If merchandise inventory at the end of the period is determined by taking a physical count inventory on hand

A periodic inventory system is being used (not covered)

Each merchandising transactions

Affects a buyer and a seller

Sellin expenses

Are incurred directly in the selling of merchandise Sale salaries Store supplies used Depreciation of store equipment Delivery expense Advertising expense

Administrative expenses (general expenses)

Are incurred in the administration or general operations of the business Office salaries Depreciation of office equipment Office supplies used

sales made to customers using credit cards

Are recorded as cash sales

Merchandise inventory is an

Asset

Inventory is an

Asset account

credit memorandum

Authorizes a credit to (decrease) the buyer's account receivable (such as fir sales return and allowances)

multiple-step income statement

Contains several sections, subsections, and subtotals

Which is not a common subsidiary ledger

Cost of goods sold subsidiary ledger

Delivery expense is the

Cost of shipping a product

The cost of merchandise sold is the

Cost of the merchandise sold to customers

Jones co. Returned merchandise purchased from smith co. Under the perpetual inventory system, the journal entry to record the return of merchandise by Jones would be

Debit accounts payable- Jones co. Credit inventory

Inventory shrinkage is recorded by which adjusting entries

Debit cost of goods sold Credit inventory

On July 20 rich company sold merchandise to York associates on account, terms FOB destination. Rich company would record the freight cost as a

Debit to delivery expense

Sales is the revenue amount

For a merchandising business

Merchandise inventory provides

Future benefits

Which would not be a line item on the income statement

Gross profit

FOB (free on board) destination

If ownership of the merchandise passes to the buyer when the buyer receives the merchandise the terms are

FOB (free on board) shipping point

If ownership of the merchandise passes to the buyer when the seller delivers the merchandise to the freight carrier the terms are

Cash or net cash

If payment is required on delivery the term are

Inventory shrinkage or inventory shortage

If the balance of the "merchandise inventory" account is larger that the total amount of the merchandise count