Accounting 101 Final

purchase returns and allowances

A contra-purchases account used under the periodic inventory system to accumulate cash refunds, credits on account, and other allowances made by suppliers.

sales discounts

A discount given to a buyer for early payment of a sale made on credit; the Sales Discounts account is a contra-revenue account.

Purchases account

A temporary account used under the periodic inventory system to accumulate the cost of merchandise purchased for resale during an accounting period.

FOB Shipping point

A term indicating that the buyer assumes title to the merchandise at the shipping point and bears the shipping costs.

FOB Destination

A term indicating that the seller retains title to the merchandise until it reaches its destination and that the seller bears the shipping costs.

physical inventory

An actual count of all merchandise on hand.

FIFO

An inventory costing method based on the assumption that the costs of the first items acquired should be assigned to the first items sold.

LIFO

An inventory costing method based on the assumption that the costs of the last items purchased should be assigned to the first items sold.

average cost method

An inventory costing method in which inventory is priced at the average cost of the goods available for sale during the period. Also called weighted average method.

specific identification

An inventory costing method in which the cost of each item in ending inventory is identified as coming from a specific purchase.

purchases discount

Discounts that buyers take for early payment of merchandise; the Purchases Discounts account is a contra-purchases account used under the periodic inventory system.

sales returns and allowances

Refunds, credits, and discounts given to customers who have received defective goods.

cash equivalents

Short-term investments that will revert to cash in 90 days or less from the time they are purchased; examples include money market accounts, commercial paper, and U.S. Treasury bills.

Merchandise Inventory

The goods on hand at any one time that are available for sale to customers.

Net sales

The gross proceeds from sales of merchandise (gross sales) less sales returns and allowances and any discounts allowed. Also called net revenue.

Freight out

The transportation cost associated with the delivery of goods from a supplier to its customers. This cost should be charged to expense as incurred and recorded within the cost of goods sold classification on the income statement.

Freight in

The transportation cost of receiving merchandise incurred by the buyer.