Chapter 5-6 DIB

An​ invoice, with payment terms of 3​/10​, ​n/30, was issued on April 28 for $235. If the payment was made on May​ 12, the amount of payment will be​ ________.

$235

A company using the perpetual inventory system purchased inventory worth $25,000 on account with terms of 2​/10, ​n/30. Defective inventory of $3,000 was returned two days​ later, and the accounts were appropriately adjusted. If the invoice is paid 10 days after the invoice​ date, the amount of the purchase discount that would be available to the company is​ ________.

$440

A company purchased inventory for $73,000 from a vendor on​ account, FOB shipping​ point, with terms of 3​/10, ​n/30. The company paid the shipper $1,800 cash for freight in. The company paid the vendor nine days after the invoice date. If there was no beginning​ inventory, the cost of inventory would be​ ________. (Assume a perpetual inventory​ system.)

$72,610

Merchandiser

A business that sells merchandise, or goods, to customers

Purchase discount

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

Refunds payable

A liability account used to estimate the amount of refunds that will be paid to customers in the future

Sales return

A reduction in the amount owed by a customer due to the return of merchandise

Sales allowance

A reduction in the amount owed by a customer that does not involve the return of merchandise inventory

Invoice

A seller's request for payment from the purchaser

Purchase return

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

Wholesaler

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

Retailer

A type of merchandiser who buys merchandise wither from a manufacturer or a wholesaler and then sells those goods to consumers

Weighted average

Amounts that fall between FIFO and LIFO Middle-ground solution Average the COGS together

Purchase allowance

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

Estimated returns inventory

An asset account used to estimate the cost of merchandise inventory a company will receive in returns

Ending merchandise inventory

Beginning merchandise inventory + inventory purchased - cost of goods sold

The main expense of a merchandiser is usually​ ________.

COGS

When a company that uses the perpetual inventory system sells goods for​ cash, the journal entry to record cost of goods sold​ is:

Cost of Goods Sold XX Merchandise Inventory XX

Gross profit

Excess of net sales revenue over cost of goods sold Gross margin

Operating expenses

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

Highest gross profit with rising inventory prices

FIFO

Lowest cost of goods sold with rising inventory prices

FIFO

Net income is the highest in rising inventory prices

FIFO

Sell product for $3 one cost $1 and the other cost $2 You would sell the one that cost $1 first which method did you use?

FIFO

types of Transportation costs

FOB shipping point, FOB destination, Freight in, and Freight out

Multi-step income statement

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

Single- step income statement

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

Which of the following is true of freight​ in?

It is the transportation cost on purchases.

Perpetual inventory system

Keeps a running computerized record of merchandise inventory

Highest cost of goods sold with rising inventory prices

LIFO

Lower taxable income with rising inventory prices

LIFO

Lowest gross profit with rising inventory prices

LIFO

Sell product for $3 one cost $1 and the other cost $2 You would sell the one that cost $2 first Which method did you use?

LIFO

FOB destination

Means the buyer takes ownership to the goods at the delivery destination point Seller pays freight Amazon prime

Gross profit percentage

Measures the profitability of each sales dollar above the cost of goods sold. Gross profit / net sales revenue.

Operating income

Measures the results of the entity's major ongoing activities. Gross profit minus operating expenses

Administrative expenses

Operating expenses incurred that are not related to marketing the company's goods and services

Selling expenses

Operating expenses related to marketing and selling the company's goods and services

Sales discounts

Reduction in the amount of revenue earned on sales for early payment

Periodic inventory system

Requires businesses to obtain a physical count of inventory to determine quantities on hand

Other income and expenses

Revenues or expenses that are outside the normal day to day operations of a business such as a gain or loss on the sale of plant assets or interest expense

FOB shipping point

Situation in which the buyer takes ownership to the goods when the goods leave the seller's place of business and the buyer typically pays the freight

Inventory costing methods

Specific Identification, FIFO, LIFO, Weighted Average

Income statement

Summarizes the results for the four inventory costing methods

Sales Revenue

The amount that a merchandiser earns from selling its inventory

Cost of goods sold (COGS)

The cost of the merchandise inventory that the business has sold to customer

Vendor

The individual or business from whom a company purchases goods

Merchandise Inventory

The merchandise that a business sells to customers

Credit terms

The payment terms of purchase or sale as stated on the invoice Final due dates included

Specific identification

The results will vary depending on which costs are assigned to the inventory sold Most companies don't use this Used when companies want to match each inventory item sold with its exact cost

Freight Out

The transportation cost to ship goods out of the seller's warehouse and to the customer, thus, it is freight on goods sold to a customer

Freight in

The transportation cost to ship goods to the purchaser's warehouse; thus it is freight on purchased goods

perpetual inventory systems record

Units purchased and cost amounts Units sold and sales and cost amounts The quantity of merchandise inventory on hand and its cost

A company that uses the perpetual inventory system purchases inventory for $63,000 on​ account, with terms of 2​/10, ​n/30. Which of the following is the journal entry to record the payment made within 10​ days?

a debit to Accounts Payable for $63,000​, a credit to Merchandise Inventory for $1,260​, and a credit to Cash for $61,740

Operating Cycle for a Merchandiser

begins with the purchase of inventory, then sells inventory, and ends with the collection of cash from the sale of inventory to customer

A purchase discount is the amount offered to the purchaser for delaying the payment to the seller.

false

Freight in is a delivery expense to the seller.

false

In a periodic inventory​ system, the​ "cash register" at the store is a computer terminal that records sales and updates inventory records.

false

FIFO

first in first out

LIFO

last in first out

Delivery expense is​ a(n) ________.

operating expense

what do most restaurants and small businesses use?

periodic

what type of system is used for relatively inexpensive goods?

periodic

Two main types of inventory accounting systems

periodic inventory system and perpetual inventory system

what type of system uses barcodes?

perpetual

Net cost of inventory purchased NCOIP

purchase cost of inventory - purchase returns and allowances - purchase discounts + freight in

The Sales Discounts Forfeited account​ ________.

represents additional revenue due to the customer not paying within the discount period

An entity that buys goods and sells them to consumers at a markup is a​ ________.

retailer

Merchandise companies report ______ revenues, not service revenues

sales

A reduction in the amount of revenue earned on sales for early payment is known as a sales discount.

true

Knowing the net cost of inventory allows a business to determine the actual cost of the merchandise purchased.

true

The Merchandise Inventory account is an asset account that is used only for goods purchased that the business owns and intends to resell to customers.

true

The operating cycle of a merchandiser begins when the company purchases inventory from a vendor and ends when the company collects cash from customers.

true

Sell product for $3 one cost $1 and the other cost $2 You would average the COGS to $1.50 each Which method did you use?

weighted average