ACCT201 - Chapter 5
Purchases Discount - p.170
A buyers views a cash discount as a purchases discount
Merchandiser - p.167
Earns net income by buying and selling merchandise; Are wholesalers or retailers
Cash Discount - p.170
Encourages buyers to pay earlier, a buyer views a cash discount as a purchases discount
EOM - p.169
End of month
FOB - p.172
Free on board; at what point ownership transfers from the seller to the buyer
Sales Returns and Allowances - p.175
If a customer is unhappy with a purchase, many sellers allow the customer to either return the merchandise for a full refund (sales return) or keep the merchandise along with a partial refund (sales allowance).
Discounts Lost - p.192
If any discounts are later lost they are recorded in a Discounts Lost expense account reported on the income statement
Credit Terms - p.169
Include the amounts and timing of payments from a buyer to a seller
Gross Method - p.171, 192
Records the purchase as its gross (full) invoice amount; Initially records an invoice at its gross (full) amount
Merchandise Inventory - p.168
Refers to products that a company owns and intends to sell
Merchandise - p.167
Refers to products, also called goods, that a company buys to resell
General and Administrative Expenses - p.180
Support a company's overall operations and includes expenses related to accounting, human resources, and finance.
Net Method - p.175, 192
The Net Method records sales at the net amount, which assumes all discounts are taken. This method requires an adjusting entry to estimate future discounts lost.
Credit Period - p.170
The amount of time allowed before full payment is due
Perpetual Inventory System - p.168
Updates accounting records for each purchase and each sale of inventory
Periodic Inventory System - p.168
Updates accounting records for purchases and sales of inventory only at the end of a period
Debit Memorandum - p.171
When a buyer returns or takes an allowance on merchandise, the buyer issues a debit memorandum which informs the seller of a debit made to the seller's account payable in the buyer's records
Credit Memorandum - p.176
When a seller accepts returns or grants an allowance, the seller issues a credit memorandum that informs the buyer of a credit made to the buyer's account in the seller's records
Sales Refund Payable - p.190
Which is current liability reflecting the amount expected to be refunded to customers
Gross Margin Ratio - p.183
or gross profit ratio, is defined as gross margin (net sales minus cost of goods sold) divided by net sales Gross Margin Ratio = Net Sales - Cost of Goods Sold / Net Sales
Discount Period - p.170
the amount of time a cash discount is available for a customer to make a reduced cash payment. In other words, this is the time period that a vendor is willing to reduce the price of a product if the customer will pay for it in cash.
Inventory Returns Estimated - p.190
A current asset reflecting the inventory estimated to be returned
Sales Discount - p.170
A seller views a cash discount as a sales discount
Gross Profit - p.168
Also called gross margin; which is net sales minus cost of goods sold
Inventory - p. 168
Also called merchandise inventory; refers to products that a company owns and intends to sell. Inventory cost includes the cost to buy the goods, ship them to the store, and make them ready for sale.
Acid-test Ratio p.183
Also called quick ratio, is defined as quick assets (cash, short-term investments, and current receivables) divided by current liabilities. Acid-test Ratio = Cash and cash equivalents + Short-term Investments + Current Receivables / Current Liabilities
Trade Discount - p.169
An item's selling price equals list price minus a percent called a trade discount; Are not journalized
Wholesaler - p.167
Buys products from manufacturers and sells them to retailers
Retailer - p.167
Buys products from manufacturers or wholesalers and sells them to customers
Multiple-step Income Statement - p.180
Details net sales and expenses and reports subtotals for various types of items; Has 3 main parts: 1. Gross Profit - net sales minus cost of goods sold 2. Income from Operations - which is gross profit minus operating expenses 3. Net Income - which is income from operations plus or minus nonoperating items
Allowance for Sales Discounts p.191
Is a contra asset account and is reported on the balance sheet as a reduction to the Accounts Receivable asset account. The Allowance for Sales Discounts account has a normal credit balance because it reduced Accounts Receivable, which has a normal debit balance. This adjusting entry results in both accounts receivable and sales being reported at the expected amounts.
Single-step Income Statement - p.181
It lists cost of goods sold as another expense and shows only one subtotal for total expenses. Expenses are grouped into few, if any, categories.
List Price - p.169
Or catalog price; when a manufacturer or wholesaler prepares a catalog of items for sale each item has a list price
Supplementary Records - p.173
Or supplemental records, refer to information outside the usual ledger accounts
Cost of Goods Sold - p167
The expense of buying and preparing merchandise is called cost of goods sold; also called cost of sales
Selling Expenses - p.180
The expenses of advertising merchandise, making sales, and delivering goods to customers
Shrinkage - p.177
The loss of inventory, and it is computed by comparing a physical count of inventory with recorded amounts
Gross Margin - p.168
The merchandiser reports Gross Margin; which is net sales minus cost of goods sold