question

Consistency Principle

answer

A business should use the same accounting methods and procedures from period to period

question

Disclosure Principle

answer

A business's financial statements must report enough information for outsiders to make knowledge decisions about the company

question

Materiality Concept

answer

A company must perform strictly proper accounting only for items that are significant to the business's financial situation

question

Conservatism

answer

A business should report the least favorable figures in the financial statements when two or more possible options are presented

question

Inventory Costing Method

answer

A method of approximating the flow of inventory costs in a business that is used to determine the amount of cost of goods sold and ending merchandise inventory

question

Specific Identification Method

answer

An inventory costing method based on the specific cost of particular units of inventory

question

First-In, First-Out (FIFO) Method

answer

An inventory costing method in which the first costs into inventory are the first costs out to cost of goods sold. Ending inventory is based on the costs of the most recent purchases

question

Cost of Goods Available for Sale

answer

The total cost spent on inventory that was available to be sold during a period

question

Last-In, First-Out (LIFO) Method

answer

An inventory costing method in which the last costs into inventory are the first costs out to cost of goods sold. The method leaves the oldest costs - those of beginning inventory and the earliest purchases of the period - in ending inventory

question

Weighted Average Method

answer

An inventory costing method based on the weighted average cost per unit of inventory that is calculated after each purchase. Weighted average cost per unit is determined by dividing the cost of goods available for sale by the number of units available

question

Lower-of-Cost-or-Market (LCM) Rule

answer

Rule that merchandise inventory should be reported in the financial statements at whichever is lower - its historical cost or its market value

question

Inventory Turnover

answer

Measures the number of times a company sells its average level of merchandise inventory during a period. Cost of goods sold/Average merchandise inventory

question

Days' Sales in Inventory

answer

Measures the average number of days that inventory is held by a company. 365 days/Inventory turnover

question

Gross Profit Method

answer

A way to estimate ending merchandise inventory on the basis of the cost of goods sold formula and the gross profit percentage

question

Retail Method

answer

A way to estimate the cost of ending merchandise inventory on the basis of the ratio of the goods available for sale at cost to the goods available for sale at retail

question

Merchandiser

answer

A business that sells merchandise, or goods, to customers

question

Merchandise Inventory

answer

The merchandise that a business sells to customers

question

Wholesaler

answer

A type of merchandiser that buys goods from manufacturers and then sells them to retailers

question

Retailer

answer

A type of merchandiser that buys merchandise either from a manufacturer or a wholesaler and then sells those goods to consumers

question

Vendor

answer

The individual or business from whom a company purchases goods

question

Cost of Goods Sold (COGS)

answer

The cost of the merchandise inventory that the business has sold to customers

question

Gross Profit

answer

Excess of net Sales Revenue over Cost of Goods Sold

question

Operating Expenses

answer

Expenses, other than Cost of Goods Sold, that are incurred in the entity's major line of business

question

Periodic Inventory System

answer

An inventory system that requires businesses to obtain a physical count of inventory to determine quantities on hand

question

Perpetual Inventory System

answer

An inventory system that keeps a running computerized record of merchandise inventory

question

Invoice

answer

A seller's request for payment from the purchaser

question

Purchase Discount

answer

A discount that businesses offer to purchasers as an incentive for early payment

question

Credit Terms

answer

The payment terms of purchase or sale as stated on the invoice

question

Purchase Return

answer

A situation in which sellers allow purchasers to return merchandise that is defective, damaged, or otherwise unsuitable

question

Purchase Allowance

answer

An amount granted to the purchaser as an incentive to keep goods that are not "as ordered"

question

FOB Shipping Point

answer

Situation in which the buyer takes ownership (title) to the goods after the goods leave the seller's place of business (shipping point) and the buyer typically pays the freight

question

FOB Destination

answer

Situation in which the buyer takers ownership (title) to the goods at the delivery destination point and the seller typically pays the freight

question

Freight In

answer

The transportation cost to ship goods into the purchaser's warehouse; therefore, it is freight on purchased goods

question

Freight Out

answer

The transportation cost to ship goods out of the seller's warehouse; therefore, it is freight on goods sold to a customer

question

Sales Revenue

answer

The amount that a merchandiser earns from selling its inventory

question

Sales Discounts

answer

Reduction in the amount of cash received from a customer for early payment

question

Sales Returns and Allowances

answer

Decreases in the seller's receivable from a customer's return of merchandise or from granting the customer an allowance from the amount owed to the seller

question

Net Sales Revenue

answer

The amount a company has made on sales of merchandise inventory after returns, allowances, and discounts have been taken out. Sales Revenue less Sales Returns and Allowances and Sales Discounts

question

Inventory Shrinkage

answer

The loss of inventory that occurs because of theft, damage, and errors

question

Single-Step Income Statement

answer

Income statement format that groups all revenues together and then lists and deducts all expenses together without calculating any subtotals

question

Multi-Step Income Statment

answer

Income statement format that contains subtotals to highlight significant relationships. In addition to net income, it reports gross profit and operating income

question

Selling Expenses

answer

Expenses related to marketing and selling the company's products

question

Administrative Expenses

answer

Expenses incurred that are not related to marketing the company's products

question

Operating Income

answer

Measures the results of the entity's major ongoing activities. Gross profit minus operating expenses

question

Other Revenues and Expenses

answer

Revenues or expenses that are outside the normal, day-to-day operations of a business, such as a gain or loss on the sale of plant assets or interest expense

question

Gross Profit Percentage

answer

Measures the profitability of each sales dollar above the cost of goods sold. Gross profit/Net sales reveune

question

Net Purchases

answer

Purchases less purchase returns and allowances less purchase discounts

Accounting Chapters 5 and 6 – Flashcards

Unlock all answers in this set

Haven't found what you were looking for?

Search for samples, answers to your questions and flashcards