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