Chapter 6: Merchandising Business
merchandise inventory
Merchandise on hand
customer allowance
Returns to the seller by the customer or reductions from the initial selling price due to defective or damaged merchandise or goods that did not meet the customer's expectations.
other revenue
Revenue from sources other than the primary operating activity of a business.
income from operations (operating income)
Revenues less operating expenses and service department charges for a profit or an investment center.
gross profit
Sales minus the cost of merchandise sold.
credit terms
Terms for payment on account by the buyer to the seller.
inventory shrinkage (inventory shortage)
The amount by which the merchandise for sale, as indicated by the balance of the merchandise inventory account, is larger than the total amount of merchandise counted during the physical inventory.
credit period
The amount of time the buyer is allowed in which to pay the seller.
cost of merchandise sold
The cost that is reported as an expense when merchandise is sold.
perpetual inventory system
The inventory system in which each purchase and sale of merchandise is recorded in an inventory account.
periodic inventory system
The inventory system in which the inventory records do not show the amount available for sale or sold during the period.
operating cycle
The process by which a company spends cash, generates revenues, and receives cash either at the time the revenues are generated or later by collecting an accounts receivable.
administrative expenses (general expenses)
administrative expenses (general expenses)
estimated returns inventory
A current asset that is reported on the balance sheet after inventory.
physical inventory
A detailed listing of merchandise on hand.
single-step income statement
A form of income statement in which the total of all expenses is deducted from the total of all revenues.
multiple-step income statement
A form of income statement that contains several sections, subsections, and subtotals.
debit memorandum (debit memo)
A form used by a buyer to inform the seller of the amount the buyer proposes to debit to the account payable due the seller.
credit memorandum (credit memo)
A form used by a seller to inform the buyer of the amount the seller proposes to credit to the account receivable due from the buyer.
customer refunds payable
A liability account for estimated refunds and allowances that will be paid or granted customers in the future.
customer discounts
A variety of discounts offered by the seller as incentive for the customer to act in a way benefiting the seller.
cash refund
An amount paid by the seller to the buyer for merchandise that is defective, is damaged during shipment, or does not meet the buyer's expectations.
wholesalers
Companies that sell merchandise to other businesses rather than to the public.
trade discounts
Discounts from the list prices in published catalogs or special discounts offered to certain classes of buyers.
purchases discounts
Discounts taken by the buyer for early payment of an invoice.
selling expenses
Expenses that are incurred directly in the selling of merchandise.
other expense
Expenses that cannot be traced directly to operations.
FOB (free on board) shipping point
Freight terms in which the buyer pays the transportation costs from the shipping point to the final destination.
FOB (free on board) destination
Freight terms in which the seller pays the transportation costs from the shipping point to the final destination.
purchases returns and allowances
From the buyer's perspective, returned merchandise or an adjustment for defective merchandise.
sales discounts
From the seller's perspective, discounts that a seller may offer the buyer for early payment.
