Accounting Ch 5
Cost of goods available for sale
Total cost of merchandise that could be sold in the accounting period
trade discount
a reduction in the listed price of a product or service
Internal controls are
accounting systems and procedures to protect a company's assets
On June 15, a company sold merchandise on credit terms n/30, FOB destination, $1,200. The cost of the merchandise was $400. Assuming a perpetual inventory system is used, the entries to record the transaction are.
debit Accounts Receivable and credit Sales for $1,200; and debit Cost of Goods Sold and credit Merchandise Inventory for $400.
Under the perpetual inventory system, in addition to making the entry to record a sale, a company would:
debit Cost of Goods Sold and credit Merchandise Inventory.
Merchandise costing $750 was sold on credit to Jaffes Company for $1,000. Five days later, $150 of merchandise was returned. The cost of the returned merchandise was $115. Assuming the periodic inventory system is used, the entry to record the return of the merchandise
debit to Sales Returns and Allowances for $150 and a credit to Accounts Receivable for $150
When the seller pays the transportation charge.
delivery expense
For internal control purposes, the receiving department:
does not receive a copy of the purchase order.
For perpetual inventory systems sales always has
double entries
When the buyer pays transportation charge.
freight-in
The periodic inventory system is used more commonly by companies that sell:
low-priced, high-volume merchandise
periodic inventory system
periodically updated
Net Purchases
purchases minus purchase returns and allowances minus purchase discounts
FOB shipping destination
seller pays freight costs
Delivery Expense
seller pays transportation charge
financing period
the amount of time from the purchase of inventory until it is sold and payment is collected, less the amount of time creditors give the company to pay for the inventory
perpetual inventory system
up to date; running total
a common measure of liquidity
working capital
A company can help its cash flows by:
-purchasing merchandise from suppliers with longer payment terms. -reducing credit terms for sales. -reducing its financing period.
Operating cycle
1. Purchase of merchandise inventory on credit 2. Payment for purchases made on credit 3. Sales of merchandise inventory for cash on credit 4. Collection of cash from credit sales
Documents
1. Purchase requisition 2. Purchase order 3. Invoice 4. Receiving report 5. Check authorization 6. Check 7. Bank statement
If beginning merchandise inventory is $25,000, ending merchandise inventory is $30,000 and net purchases are $50,000, the cost of goods available for sale is
75,000
Lexel Company sold goods for $1,000 with a 10 percent trade discount, terms 2/10, n/30. How much would Lexel receive if the account were paid within the discount period?
882
exchange gain or loss
A gain or loss due to exchange rate changing
Control Activities
Authorization, recording transactions, documents and records, physical controls, periodic independent verification, separation of duties, and bonding
A seller may offer a sales discount to:
Both to increase liquidity and to reduce accounts receivable.
purchases discounts
Discounts a buyer takes for early payment of merchandise
sales discount
Discounts a buyer takes when paying an invoice within a set number of days from the invoice date
Which of the following control activities requires that employees take vacations?
Sound personnel procedures
FOB shipping point
buyer pays freight costs
what type of account is Sales Returns and Allowances?
contra-revenue account
Internal Control
control environment risk assessment control activities information and communication monitoring