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
