Accounting Chapter 4

Lost, Damaged, or Stolen Inventory

- Most merchandise companies experience some level of inventory shrinkage, a term that reflects decreases in inventory for reasons other than sales to customers.

Gross Margin Percentage -This measure indicates how much of each sales dollar is left after deducting the cost of goods sold to cover expenses and provide a profit - Other things being equal, the company with the higher gross margin percentage is pricing its products higher.

Gross Margin/ Net Sales

Merchandising Businesses

Merchandising Businesses- generate revenue by selling goods. The goods purchased for resale are called merchandise inventory.

Return on Sales Net income expressed as a percentage of sales provides insight as to how much of each sales dollar is left as net income after all expenses are paid. - Other things being equal, the company with the higher return on sales percentage is doing a better job of controlling costs.

Net Income /Net Sales

Perpetual Inventory System

Perpetual Inventory System- Inventory account is adjusted perpetually (continually) throughout the accounting period.

Product Costs Versus Selling and Administrative Costs

Product Costs- Costs that are included in inventory. Selling & Admin. Costs- Costs that are not included in inventory. They are sometimes called period costs

Gains and Losses (Formula)

Sales Price of Land - Cost of Land Gain or Loss

Gross margin

Sales Revenue -Cost of Goods Sold Gross Margin