Chapter 5 accounting

In the T account of merchandise inventory is the purchase discount credited or debited?

Credited, decreasing merchandise inventory

Where is merchandise inventory listed on the balance sheet?

Current assets, below accounts receivable.

If smart touch learning pays the 35000$ within the credit terms what would their journal entry be?

Debit accounts payable Credit cash (35,000 - 1050) Credit merch inv (35000 x .03)

Sales return and allowance:

Decreases the sellers receivable and is either a return or encourages customer to keep goods.

What does the gross profit percentage measure?

profitability of each sales dollar above the cost of goods sold.

What TWO entries need to be made in an sales return?

1. Record sales R&A and decrease accounts rec 2. Merchandise Inventory & COGS

In a perpetual merchandise sale what TWO journal entries are recorded?

1. Sales Revenue & Cash/Acc Rec 2. COGS & Merchandise Inv

Inventory Shrinkage:

Accounts for inventory that was damaged, stolen, miscounted

When you make a payment within the discount period what account always has to be debited its full amount?

Accounts payable

When the purchaser finally pays for the goods within the credit terms what are the 3 accounts used?

Accounts payable debit, Cash credit, merch inventory credit

What 2 accounts do purchase A&D always effect?

Accounts payable- debit Merchandise inventory- credit

When a purchaser is granted a sale allowance how do you journalize?

Accounts payable=debit Merch Inv= credit

When the seller finally receives the money for the goods sold and it is within the credit terms what accounts are used?

Accounts receivable credit, Cash debit, sales discount debit

When a seller grants a sale allowance how do you journalize?

Accounts receivable=credit Sales allowance=debit

Selling expenses:

Anything related to marketing and selling a companies goods

How do you journalize a FOB shipping point freight cost?

Buyer pays the freight so the cost is added into the merchandise inventory. Debit merch inv and credit cash.

What do you journal for inventory shrinkage?

COGS and Merch Inv

Is freight in debited or credited in periodic?

Debited

Purchase allowances and discounts do what to the buyers cost of merch inv?

Decrease!

What does a sales return do to stockholders equity of the buyer?

Decreases because its an expense.

How is freight out journalized?

Delivery Expense & Cash

Administrative expenses:

Everything else besides marketing expenses

What type of an account is COGS?

Expense account

What are the steps to complete a merchandise inventory Income Statement?

Find gross profit by calculating the Net sales revenue and then the COGS. Than list the operating expenses and total those. Then find Net income.

How is gross profit percentage computed?

Gross Profit/Net sales rev

What 2 things measures a business success?

Gross profit and Net income

How do you find net income on a merchandise inventory income statement?

Gross profit- Operating expenses = Net Income

Define purchase discount

Incentive so business's pay early

Where is gross profit recorded?

Income Statement

Close expense via_____

Income summary

Close revenue via _____ account

Income summary

What is the last section on an income statement?

Income tax expense

Is merchandise inventory used in journal entries of periodic?

NOOOOO

How do you find gross profit?

Net Revenue- COGS=GP

Difference with merchandise sale periodic?

Only 1 entry and that is accounts receivable and sales rev.

How many entries are there for a sales allowance and what are they?

Only one because customer keeps goods. Sales return and allowance & Acc receivable

What is listed after operating income on the income statement?

Other revs and expenses ( interest exp)

Name the 2 merchandise inventory systems.

Perpetual and periodic

What accounts are used in purchases of merchandise inventory for periodic but NOT perpetual?

Purchases, purchase discounts, purchase returns and allowances, freight in costs

Sales discount:

Reduction in amount received for early payment

Close income summary via ____

Retained Earnings

Close dividends via ____

Retained earnings

Net income effects flow to what other accounts?

Retained earnings and stockholders equity

Net Sales Revenue:

Sales Revenue-Sales R&A-Sales discounts

What 2 categories are operating expenses split into?

Selling and administrative

What type of account is a sales revenue?

Stockholders equity, normal balance is a credit

How will and expense effect the accounting equation?

Stockholders equity, retained earnings and net income. All decrease.

What is gross profit?

The profit a company makes after deducting all of its expenses in selling and producing

How is net cost of inventory calculated?

Total purchases-purchase R&A-purchase discounts+Freight in.

How do you find the amount to adjust for inventory shrinkage?

Unadjusted Bal-merch on hand

List the 3 things that a perpetual system records

Unit purchased and their costs, Units sold and sale and cost amounts, merchandise inventory on hand and cost amounts.

Define purchase return:

When purchasers return goods that are defective

invoice

a sellers request for payment from the company

What does the net cost of inventory tell us?

actual cost of merchandise purchased

Sales Revenue:

amount a merchandiser earns from selling its inventory

merchandise inventory

business that sells merchandise

FOB shipping point:

buyer is the owner when goods leave the SHIPPING point and buyer usually pays the freight.

FOB destination:

buyer takes ownership once it reaches the DESTINATION, seller usually pays the freight.

wholesaler

buys from manufacturers and sells to retailers

What is COGS

cost of merchandise inventory that business has sold to customers

Freight in:

cost to ship goods into purchasers warehouse

Freight out:

cost to ship goods out of sellers warehouse

journal entry for receiving goods for 35$ but pays on account.

debit merch inventory credit accounts payable

what journal entry would be needed: Receives goods 35 and makes payment right away.

debit merch inventory credit cash

Define purchase allowance:

deduction from sales price, incentive for buyers to keep goods even though they weren't as ordered.

Operating Expenses

expenses other than COGS

3 additives on merchandise company income statement

gross profit, COGS, operating expenses

3/15 n/30

if paid within 15 days 3% discount, otherwise full amount in 30 days.

Define perpetual system:

keeps a running record of merchandise inventory

Define periodic system:

requires company to obtain physical count of inventory, used for smaller business's.

3 types of merchandisers

wholesaler, retailer, manufacturer

Difference of merchandise company on BS

merchandise inventory

Retail

merchandiser who buys from WS or MF and sells to customers

Net 30 days or n/30

pay full amount within 30 days

Credit terms

payment terms stated on invoice

how do you compute COGS?

Beg inv+Inv purchases-purchase discounts-purchase r&a+freight in-ending inventory

Is there inventory shrinkage in periodic?

NO