chapter 5

gross margin percentage

A broad measure of profitability

vendor

A business from which merchandise is purchased or supplies or other assets are bought

merchandising

A business that purchases and sells goods

purchase discount

A cash discount claimed by a buyer for prompt payment of a balance due.

perpetual inventory system

A detailed inventory system in which a company maintains the cost of each inventory item and the records continuously show the inventory that should be on hand.

invoice

A form describing the goods or services sold, the quantity, and the price

FOB

Abbreviation for free on board; the point when ownership of goods passes to the buyer; FOB shipping point (or factory) means the buyer pays shipping costs and accepts ownership of goods when the seller transfers goods to carrier; FOB destination means the seller pays shipping costs and buyer accepts ownership of goods at the buyer's place of business.

purchase returns

Accounts Payable

inventory

An account of things.

single-step income statement

An income statement in which all expenses are added together and subtracted from all revenues.

periodic inventory system

An inventory system in which a company does not maintain detailed records of goods on hand and determines the cost of goods sold only at the end of an accounting period.

merchandisers

Businesses that sell merchandise, or goods, to customers

FOB shipping point

Buyer pays freight costs

inventory turnover

COGS / Average Inventory

operating expenses

Expenses incurred in paying for the day-to-day activities of the business

General expenses

Expenses incurred that are not related to marketing the company's products

selling expenses

Expenses of promoting sales, such as displaying and advertising merchandise, making sales, and delivering goods to customers.

income from operations/operating income

Income from a company's principal operating activity; determined by subtracting cost of goods sold and operating expenses from net sales.

number of days in inventory

Ratio that measures the average number of days that inventory is held by a company

purchase allowances

Reduction in price of goods purchased as a result of dissatisfaction by customers (buyer's perspective).

net sales revenue

Sales revenue less sales discounts and sales returns and allowances

FOB destination

Situation in which the buyer takes ownership (title) at the delivery destination point and the seller pays the freight

credit terms

Terms that set out the time allowed for payment for a sale on account.

sales/sales revenue

The amount that a merchandiser earns from selling its inventory

Freight in

The transportation cost to ship goods INTO the warehouse; therefore, it is freight on purchased goods.

Freight out

The transportation cost to ship goods OUT of the warehouse; therefore, it is freight on goods sold to a customer.

net purchases

Total purchases less purchases discount and purchases returns and allowances

sales return and allowance

We sold an item and the purchaser returns it(2JE)

other revenue/expenses

in what section of the income statement should a company report sales discounts forfeited/interest revenue?

sales discount

A cash discount on sales taken by a customer

operating income

Gross Profit minus operating expenses

Gross Margin

Gross Profit/Sales

multi-step income statement

an income statement that contains subtotals to highlight important relationships between revenues and expenses

cost of goods/cost of sales

the cost of the inventory that the business has sold to customers