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