Chapter 6
Cost of Goods available for sale
The sum of beginning inventory and the net cost of purchases during an accounting period. (p. 221)
Operating Cycle
The time it takes to sell products and collect payment for them
Delivery Expense
The transportation cost of delivering merchandise incurred by the seller. Also called freight-out.
Freight-In
The transportation cost of receiving merchandise
Manufacturing Company
A company that makes and sells products
Purchases Return and Allowances Account
A contra-purchases account used under the periodic inventory system to accumulate cash refunds, credits on account, and other allowances made by supplier
Sales Returns and Allowances Accounts
A contra-revenue account used to accumulate cash refunds, credits on account, and other allowances made to customers who have received defective or otherwise unsatisfactory products
Trade Discount
A deduction (usually 30 percent or more) off a list or catalogue price, which is not recorded in the accounting record
Sales Discount
A discount given to a buyer for early payment of a sale made on credit; the Sales Discounts account is a contra-revenue account
Exchange Gain or Loss
A gain or loss due to exchange rate fluctuation between the date of sale and the date of payment; it is reported on the income statement. (p. 230)
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.
Purchase 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.
General and Admin. Expenses
Expenses for accounting, personnel, credit checking, collections, and any other expenses that apply to overall operations.
Operating Expenses
Expenses other than cost of goods sold incurred in running a business.
Income from Operations
Gross margin minus operating expenses. Also called operating income
Sales Returns and Allowances
Refunds, credits, and discounts given to customers who have received defective goods
Costs of Goods Sold
The amount a merchandiser paid for the merchandise it sold during an accounting period or the cost to a manufacturer of making the products it sold during an accounting period. Also called cost of sales or cost of revenue.
Financing Period
The amount of time from the purchase of inventory until it is sold and payment is collected, less the amount of time creditors give the company to pay for the inventory.
Selling Expenses
The costs of storing goods and preparing them for sale; preparing displays, advertising, and otherwise promoting sales; and delivering goods to a buyer if the seller has agreed to pay the cost of delivery.
Gross Margin
The difference between net sales and cost of goods sold. Also called gross profit.
Merchandise Inventory
The goods on hand at any one time that are available for sale to customers.
Percentage of Gross Margin
The gross margin divided by net sales
Net Sales
The gross proceeds from sales of merchandise (gross sales) less sales returns and allowances and any discounts allowed. Also called net revenue
Net Cost of Purchases
Total purchases plus freight-in less any deductions such as purchases returns and allowances and discounts from suppliers for early payment.
Gross Sales
Total revenue from cash and credit sales during an accounting period