ACCT201 - Chapter 5

Purchases Discount - p.170

A buyers views a cash discount as a purchases discount

Merchandiser - p.167

Earns net income by buying and selling merchandise; Are wholesalers or retailers

Cash Discount - p.170

Encourages buyers to pay earlier, a buyer views a cash discount as a purchases discount

EOM - p.169

End of month

FOB - p.172

Free on board; at what point ownership transfers from the seller to the buyer

Sales Returns and Allowances - p.175

If a customer is unhappy with a purchase, many sellers allow the customer to either return the merchandise for a full refund (sales return) or keep the merchandise along with a partial refund (sales allowance).

Discounts Lost - p.192

If any discounts are later lost they are recorded in a Discounts Lost expense account reported on the income statement

Credit Terms - p.169

Include the amounts and timing of payments from a buyer to a seller

Gross Method - p.171, 192

Records the purchase as its gross (full) invoice amount; Initially records an invoice at its gross (full) amount

Merchandise Inventory - p.168

Refers to products that a company owns and intends to sell

Merchandise - p.167

Refers to products, also called goods, that a company buys to resell

General and Administrative Expenses - p.180

Support a company's overall operations and includes expenses related to accounting, human resources, and finance.

Net Method - p.175, 192

The Net Method records sales at the net amount, which assumes all discounts are taken. This method requires an adjusting entry to estimate future discounts lost.

Credit Period - p.170

The amount of time allowed before full payment is due

Perpetual Inventory System - p.168

Updates accounting records for each purchase and each sale of inventory

Periodic Inventory System - p.168

Updates accounting records for purchases and sales of inventory only at the end of a period

Debit Memorandum - p.171

When a buyer returns or takes an allowance on merchandise, the buyer issues a debit memorandum which informs the seller of a debit made to the seller's account payable in the buyer's records

Credit Memorandum - p.176

When a seller accepts returns or grants an allowance, the seller issues a credit memorandum that informs the buyer of a credit made to the buyer's account in the seller's records

Sales Refund Payable - p.190

Which is current liability reflecting the amount expected to be refunded to customers

Gross Margin Ratio - p.183

or gross profit ratio, is defined as gross margin (net sales minus cost of goods sold) divided by net sales Gross Margin Ratio = Net Sales - Cost of Goods Sold / Net Sales

Discount Period - p.170

the amount of time a cash discount is available for a customer to make a reduced cash payment. In other words, this is the time period that a vendor is willing to reduce the price of a product if the customer will pay for it in cash.

Inventory Returns Estimated - p.190

A current asset reflecting the inventory estimated to be returned

Sales Discount - p.170

A seller views a cash discount as a sales discount

Gross Profit - p.168

Also called gross margin; which is net sales minus cost of goods sold

Inventory - p. 168

Also called merchandise inventory; refers to products that a company owns and intends to sell. Inventory cost includes the cost to buy the goods, ship them to the store, and make them ready for sale.

Acid-test Ratio p.183

Also called quick ratio, is defined as quick assets (cash, short-term investments, and current receivables) divided by current liabilities. Acid-test Ratio = Cash and cash equivalents + Short-term Investments + Current Receivables / Current Liabilities

Trade Discount - p.169

An item's selling price equals list price minus a percent called a trade discount; Are not journalized

Wholesaler - p.167

Buys products from manufacturers and sells them to retailers

Retailer - p.167

Buys products from manufacturers or wholesalers and sells them to customers

Multiple-step Income Statement - p.180

Details net sales and expenses and reports subtotals for various types of items; Has 3 main parts: 1. Gross Profit - net sales minus cost of goods sold 2. Income from Operations - which is gross profit minus operating expenses 3. Net Income - which is income from operations plus or minus nonoperating items

Allowance for Sales Discounts p.191

Is a contra asset account and is reported on the balance sheet as a reduction to the Accounts Receivable asset account. The Allowance for Sales Discounts account has a normal credit balance because it reduced Accounts Receivable, which has a normal debit balance. This adjusting entry results in both accounts receivable and sales being reported at the expected amounts.

Single-step Income Statement - p.181

It lists cost of goods sold as another expense and shows only one subtotal for total expenses. Expenses are grouped into few, if any, categories.

List Price - p.169

Or catalog price; when a manufacturer or wholesaler prepares a catalog of items for sale each item has a list price

Supplementary Records - p.173

Or supplemental records, refer to information outside the usual ledger accounts

Cost of Goods Sold - p167

The expense of buying and preparing merchandise is called cost of goods sold; also called cost of sales

Selling Expenses - p.180

The expenses of advertising merchandise, making sales, and delivering goods to customers

Shrinkage - p.177

The loss of inventory, and it is computed by comparing a physical count of inventory with recorded amounts

Gross Margin - p.168

The merchandiser reports Gross Margin; which is net sales minus cost of goods sold