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Merchandise

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Products that a company acquires to resell to customers

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Merchandiser

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Earns net income by buying and selling merchandise

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Wholesaler

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Intermediary that buys products from manufactures or other wholesalers and sells them to retailers or other wholesalers

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Retailer

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Intermediary that buys products from manufactures or wholesalers and sells them to consumers

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Cost of Goods Sold (Cost of Sales)

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Cost of inventory sold to consumers during a period.

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Gross profit (Gross Margin)

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Gross profit = Net Sales - Cost of goods sold

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Merchandiser Inventory

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Products that a company owns and intends to sell

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Operating Circle

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1) Cash purchases of merchandise 2) inventory for sale 3) credit sales 4) accounts receivable 5) Cash

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Inventory

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Products a company owns and expects to sell in its normal operations

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Perpetual Inventory System

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Method that maintains continuous records of the cost of inventory available and the cost of goods sold

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Periodic Inventory System

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Method in which a company does not maintain detailed records of goods on hand and determines the cost of goods sold only at the end of an accounting period.

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Credit Terms

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The amounts and timing of payment from a buyer to a seller

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EOM

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Abbreviation for end of month; used to describe credit terms for credit transactions.

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Credit Period

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Amount of time allowed before full payment is due

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Cash Discount

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Reduction in price of merchandise granted by a seller to a buyer when payment is made within the discount period

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Purchase Discount

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Term used by a purchaser to describe a cash discount granted to the purchaser for paying within the discount period

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Sales Discount

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Term used by a seller to describe a cash discount granted to buyers who pay within the discount period

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Discount Period

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Time period in which a cash discount is available and the buyer can make a reduction payment

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Purchase Returns

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Merchandise a buyer acquires but then returns to the seller

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Purchase Allowance

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Reduction in the cost of defective or unacceptable merchandise that a buyer acquires

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Debit Memorandum

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Notification that the sender has debited the recipient's account in the sender's records

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Implied Annual Interest Rate

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[365 / (credit period - discount period)] * cash discount rate

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Favorable Purchase Discount

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Those with implied interest rates that exceed the purchaser's annual rate for borrowing money

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FOB

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Free on Board

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FOB Shipping Point (FOB Factory)

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The buyer accepts ownership when the goods depart the seller's place of business

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FOB Destination

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Situation in which the buyer takes ownership at the delivery destination point and the seller pays the freight

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Supplementary (Supplemental) Records

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Information outside the usual general ledger accounts

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Sales Returns

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Merchandise that a customer return to the seller after the sale

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Sales Allowance

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Reductions in the selling price of merchandise that a customer is willing to purchase with a decrease in selling price

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Credit Memorandum

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Informs a buyer of the seller's credit to the buyer's Account Receivable

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Shrinkage

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Loss of inventory and it is computed by recording physical count of inventory with recorded amounts

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Multiple-step Income Statement

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Shows detailed computations of net sales, other costs, expenses, and reports subtotals for various classes of items It has three main parts: 1) Gross Profit 2) Income Form of operations 3) Net Income

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Selling Expenses

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Expenses of promoting sales (by displaying and advertising merchandise, making sales, and delivering goods to customers)

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General & Administrative Expenses

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Expenses that support the operating activities of a business

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Nonoperating Expenses

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Consist of other expenses, revenues, losses, gains, that are unrelated to a company's operations

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Other Revenues & Gains

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Commonly include interest revenue, dividend revenue, rent revenue, and gains from asset disposals

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Other Expenses & Losses

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Commonly include interest expense, losses and asset disposals, and casually losses

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Single-Step Income Statement

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Income statement format that includes cost of goods sold as an expense and shows only one subtotal for total expenses

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Acid-Test Ratio

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Ratio used to assess a company's ability to settle its current debts with its most liquid assets = (Cash and cash equivalents + Short-term investments + Current Receivables) / (Current Liabilities)

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Gross Margin Ratio

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(Net Sales - Cost of Goods Sold) / Net Sales

Financial & Managerial Accounting: Chapter 4-Terms – Flashcards

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