Accounting Chapter 6

periodic inventory system

In a ________, the inventory does not show the amount of merchandise available for sale and the amount sold.

trade discounts

In addition, wholesalers often offer special discounts to government agencies or businesses that order large quantities. Such discounts are called_______.

debit memorandum

In both cases (of purchases returns and allowances), the buyer normally sends the seller a ____. often called a debit memo

merchandise inventory

Merchandise on hand (not sold) at the end of an accounting period is called __________. It is reported as a current asset on the balance sheet.

credit period

Otherwise, the buyer is allowed an amount of time, known as the _______, in which to pay. The credit period usually begins with the date of the sale as shown on the invoice.

multiple-step income statement

The _______ contains several sections, subsections, and subtotals, including the following: Sales Cost of Merchandise Sold Gross Profit Income from Operations Other Income and Expense

operating cycle

The ________ is 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.

report form

The balance sheet may also be presented in a downward sequence in three sections. This form of the balance sheet is called the

account form

The balance sheet may be presented with assets on the left-hand side and the liabilities and owner's equity on the right-hand side. This form of the balance sheet is called the

gross profit

The cost of merchandise sold is subtracted from sales to arrive at _____, which is the profit before deducting operating expenses.

FOB (free on board) destination

The ownership of the merchandise may pass to the buyer when the buyer receives the merchandise. In this case, the terms are said to be ______. This term means that the seller pays the freight costs from the shipping point to the buyer's final destination.

FOB (free on board) shipping point

The ownership of the merchandise may pass to the buyer when the seller delivers the merchandise to the freight carrier. In this case, the terms are said to be _____. This term means that the buyer pays the freight costs from the shipping point to the final destination

credit terms

The terms for when payments for merchandise are to be made are called the

invoice

The terms of purchases on account are normally indicated on the____ or bill that the seller sends the buyer.

The activities of a service business differ from those of a merchandising business.

These differences are reflected in the operating cycles of a service and merchandising business as well as in their financial statements.

inventory shrinkage or inventory shortage

Thus, the physical inventory on hand at the end of the accounting period is usually less than the balance of Merchandise Inventory. This difference is called

sales

When this merchandise is sold, the revenue is reported as

Income from operations

_______, or operating income, is determined by subtracting operating expenses from gross profit.

Selling expenses

are incurred directly in the selling of merchandise.

Administrative expenses, sometimes called general expenses

are incurred in the administration or general operations of the business.

cost of merchandise sold

cost is recognized as an expense called

debit memo

to notify the seller of reasons for the return (purchase return) or to request a price reduction (purchase allowance). It also informs the seller of the amount the buyer proposes to debit to the account payable due the seller.

2/10, n/30

"2% discount if paid within 10 days, net amount due within 30 days."

sales discount

A ____ encourages customers to pay their invoice early.

purchases returns and allowances

A buyer may request an allowance for merchandise that is returned (purchases return) or a price allowance (purchases allowance) for damaged or defective merchandise. From a buyer's perspective, such returns and allowances are called ____.

customer discounts

A seller may grant customers a variety of discounts, called ______, to encourage customers to act in a way benefiting the seller.

single-step income statement

An alternative form of income statement is the

purchases discounts

Discounts taken by the buyer for early payment of an invoice are called _______.

customer returns and allowances

From a seller's perspective, these are termed ______, sometimes called sales returns and allowances.

perpetual inventory system

In a _______, each purchase and sale of merchandise is recorded in the inventory account and related subsidiary ledger.