nobles__ch 05__merchandising operations
FOB
(free on board) determines who pays the freight a. free on board - shipping__means freight cost is free to the shipper/seller, therefore the buyer pays the freight cost b. free on board - destination__means freight cost is free to the buyer, therefore the shipper/seller pays the freight cost
perpetual inventory system__closing entries on temp accts of a merchandiser
1. make the revenue accts equal zero via the income summary acct 2. make expense accts and other temporary accts (sales returns and allowances and sales discounts) with a debit balance equal zero via the income summary acct 3. make the income summary acct equal zero via the retained earning acct. this closing entry transfers net income (or net loss) to retained earnings 4. make the dividends acct equal zero via the retained earnings acct
perpetual inventory system__closing the accts of a merchandiser__4 steps
1. make the revenue accts equal zero via the income summary acct 2. make expense accts and other temporary accts (sales returns and allowances and sales discounts) with a debit balance equal zero via the income summary acct 3. make the income summary acct equal zero via the retained earning acct. this closing entry transfers net income (or net loss) to retained earnings 4. make the dividends acct equal zero via the retained earnings acct
operating cycle of a merchandiser
1. purchase inventory__(creates inventory) 2. sell the inventory__(creates a/r) 3. collect cash__(pmts) from customers__(receive revenue--cash--pmts)
merchandiser
a business that sells merchandise, or goods, to customers
purchase discounts
a discount that businesses offer to purchasers as an incentive for early payment
invoice__purchase invoice
a seller's request for payment from the purchaser
purchase return
a situation in which sellers allow purchasers to return merchandise that is defective, damaged, or otherwise unsuitable
wholesaler
a type of merchandiser that buys goods from manufacturers and then sells them to retailers
retailer
a type of merchandiser that buys merchandise either from a manufacturer or a wholesaler and then sells those goods to consumers
periodic inventory system__adj trial bal
adjusted trial balance with temporary accounts to be closed for periodic inventory system
perpetual inventory system__sales revenue__cash
amount that a merchandiser earns from selling its inventory, paid for in cash but the customer
perpetual inventory system__sales revenue__on account
amount that a merchandiser earns from selling its inventory, paid for on account but the customer
perpetual inventory system__sales allowance
an allowance the seller grants to the customer/buyer for damaged/unsuitable goods the customer keeps and does NOT return
perpetual inventory system__sales allowance within disc period
an allowance the seller grants to the customer/buyer for damaged/unsuitable goods the customer keeps and does NOT return within disc period
purchase allowance
an amount granted to the purchaser as an incentive to keep goods that are not 'as ordered'
perpetual inventory system
an inventory system that keeps a running computerized record of merchandise inventory
periodic inventory system
an inventory system that requires businesses to obtain a physical count of inventory to determine quantities on hand
journalize - payment within discount period
db a/p for full inv amt
gross profit
excess of net sales revenue over cost of goods sold
administrative expenses
expenses incurred that are not related to marketing the company's products
selling expenses
expenses related to marketing and selling the company's products
operating expenses
expenses, other than the cost of goods sold, that are incurred in the entity's major line of business
freight in__within disc period
freight is not subject to discount terms
financial stmts__preparing
in periodic and perpetual, preparing financial stmts is similar, except cost of goods sold must be computed separately under periodic inventory system
multi-step income stmt
income statement format that contains subtotals to highlight significant relationships. in addition to net income, it reports gross profit and operating income
single-step income stmt
income statement format that groups all revenues together and then lists and deducts all expenses together without calculating any subtotals
journalize - merchandise inventory account
is an asset and is used only for goods purchased that the business owns and intends to resell to customers
gross profit percentage
measures the profitability of each sales dollar above the cost of goods sold. gross profit percentage = gross profit / net sales revenue
operating income
measures the results of the entity's major ongoing activities. gross profit minus operating expenses operating income = gross profit - operating expenses
cost of inventory purchased
net cost of inv purch = purch cost of inv - purch returns and allowances - purch discounts + freight in
periodic inventory system__adjusting and closing entries
no adjustment is made to inventory shrinkage since there is no perpetual running balance of merchandise inventory
periodic inventory system__journalize receipt of goods
receipt of goods and pmt within discount period when using the periodic inventory system, the merchandise inventory acct is not updated during the period, and it will never be used when recording purchases, discounts, returns, or sales of inventory
perpetual inventory system__sales discounts__cash
reduction in the amount of cash received from a customer for early payment
periodic inventory system__journalize return of goods
return of goods in periodic inventory system is recorded in purchase returns and allowances, not in merchandise inventory. both (purchase discounts) and (purchase returns and allowances) are contra expense accts. they are related to the purchases acct.
other revenues and expenses
revenues or expenses that are outside the normal, day-to-day operations of a business, such as a gain or loss on the sale of plant assets or interest expense
FOB destination
situation in which the buyer takes ownership (title) to the goods at the delivery destination point and the seller typically pays the freight
FOB shipping point
situation in which the buyer takes the ownership (title) to the goods after the goods leave the seller's place of business (shipping point) and the buyer typically pays the freight
periodic inventory system__temp accts to be closed
temporary accounts to be closed
perpetual inventory system__net sales revenue and gross profit
the amount a company has made on sales of merchandise inventory after returns,m allowances, and discounts have been taken out. net sales rev = sales rev - sales returns and allowances - sales discounts
cost of goods sold (COGS)
the cost of the merchandise inventory that the business has sold to customers
vendor
the individual or business from whom a company purchases goods
periodic inventory system__journalize transportation costs
the journal entry goes into a separate expense acct, freight, rather than to the merchandise inventory acct.
perpetual inventory system__inventory shrinkage
the loss of inventory that occurs because of theft,m damage, and errors adj entry = merch inv bal before adj - actual merch inv on hand 240 = 31530 - 31290
merchandise inventory
the merchandise that a business sells to customers
credit terms
the payment terms of purchase or sale as stated on the invoice
periodic inventory system__net purchases
the remainder of the balance of purchases, after subtracting the contra accounts from purchases: net purchases = purchases - purch returns and allowances - purch discounts
periodic inventory system__sale of merchandise inventory
the sale is recorded in a/r and sales revenue there is no need to record an entry into merchandise inventory and cost of goods sold
freight in
the transportation cost to ship goods into the purchaser's warehouse; therefore, it is freight on purchased goods
freight out
the transportation cost to ship goods out of the seller's warehouse; therefore, it is freight on goods sold to a customer