accounting chapter 6 pt 1

Multiple step income statement

I.S. containing many sections, subsections, and sub totals.

Purchase returns and allowances

a buyer's request for allowance for merchandise that is returned (purchase return) or a price allowance (purchase allowance).

physical inventory

a list of inventory on hand prepared at the end of an accounting period used to determine the cost of merchandise on hand at the end of an accounting period and the cost of merchandise sold during that period.

Credit memorandum

aka credit memo, this authorizes a credit (decrease) to the buyers account receivable.

Debit memorandum

aka debit memo informs the seller of the amount the buyer proposes to debit to the account payable sue the seller.

invoice

bill that the seller sends the buyer.

Income from operations

determined by subtracting operating expenses from gross profit.

purchases discounts

discounts taken by the buyer for early payment of an invoice.

Trade discounts

discounts wholesalers offer to government agencies or businesses that order larger quantities.

merchandise inventory

merchandise on hand (not sold) at the end of an accounting period. (current asset)

credit period

period allowed by the seller for the buyer to pay off any debts.

sales

revenue recorded in a merchandising business when merchandise is sold.

FOB (free on board) destination

seller pays freight costs from the shipping point to the buyer's final destination.

cost of merchandise sold

the expense incurred when a business buys merchandise to sell to customers. the cost of merchandise sold is subtracted from sales to get the gross profit

credit terms

the terms for which payments for merchandise are to be made.

FOB (free on board) shipping point

buyer pays the freight costs from the shipping point to the final destination.

perpetual inventory system

each purchase and sale of merchandise is recorded.

what's on the income statement for a service based business?

fees earned minus operating expenses equals net income.

Sales returns and allowances

merchandise sold can be returned to the seller (if defective or under policy). The seller may reduce initial selling price (sales allowance) if product is damaged/defective

Sales discounts

offer the seller makes to the buyer in form of a discount for early payment.

what's on the income statement for a merchandising business?

sales minus the cost of merchandise sold equals gross profit. and gross profit minus operating expenses equals net income.

periodic inventory system

system in which a physical inventory is prepared at the end of the accounting period.

gross profit

the profit before deducting expenses.

Net Sales

total sales to consumers from cash and account has returns and allowances and sales discounts deducted to get net sales.