Act 300 Module 3 chapter 5 notes – Flashcards
Unlock all answers in this set
Unlock answersquestion
Service Company reporting income
answer
Revenues - expenses = net income
question
Merchandiser company reporting income
answer
Net sales - cost of goods sold = gross profit Gross profit - expenses = net income
question
Merchandise inventory
answer
A merchandiser's balance sheet includes a current asset called merchandise inventory which is not on the balance sheet. This refers to products that a company owns and intends to sell. The cost of this asset includes the cost incurred to buy the goods, ship them to the store, and make them ready for sale
question
Operating cycle for a merchandiser
answer
begins with cash purchasing merchandise, inventory for sale, credit sales, accounts receivable, cash paid by customer
question
Inventory, what a company owns and expects to sell.
answer
cost of goods sold is often the single largest expense on merchandiser's income statement
question
Perpetual inventory system
answer
continually updates accounting records for merchandising transactions - specifically for those records of inventory available for sale and inventory sold.
question
Periodic inventory system
answer
updates the accounting records for merchandise transactions only at the end of a period.
question
Hybrid system
answer
perpetual system is used for tracking units available and periodic system is used to compute cost of sales
question
Credit period
answer
The amount of time allowed before full payment is due
question
Implied annual interest rate formula
answer
[365 days / (credit period - discount period)] x cash discount rate. Example: 2/10,n/30 (2% discount if paid within 10 days) [365 days / (30 days - 10 days)] x 2% discount rate = 36.5%
question
buyer's allowance for defective merchandise
answer
usually offset against buyer's current account payable balance to he seller. When cash is refunded, the cash account is debited instead of the accounts payable
question
Seller's allowance for defective merchandise
answer
debit: account payable credit: merchandise inventory - allowance for defective merchandise
question
FOB ( free on board)
answer
The point at which transfer of merchandise is made .
question
FOB Shipping point or FOB factory
answer
buyer accepts ownership when goods depart seller's place of business. Buyer is responsible for paying shipping costs and bearing risk of damage or loss when goods are in transit
question
FOB destination
answer
ownership is transferred to buyer when the goods arrive at the buyer's place of business. The seller is responsible for paying shipping charges and bears the risk of damage or loss in transit. The seller does not record revenue from this sale until the goods arrive at the destination because this transaction is not complete before that point.
question
supplemental records
answer
refer to information outside the usual general ledger accounts such as total purchases, total purchase discounts, total purchase returns and allowances, and total transportation-in.
question
Seller's merchandise transaction
answer
involves 2 parts: 1. Revenue received in the form of an asset from the customer + asset (act. rec) + equity (sales on credit) 2. Cost recognized for the merchandise sold to the customer - asset (cost of goods sold) - equity (merchandise inventory)
question
Shrinkage
answer
term used to refer to the loss of inventory and is computed by comparing a physical count of inventory with recorded amounts. A physical count is usually performed at least once annually.
question
multi-step income statement
answer
has 3 main parts: 1. gross profit determined by net sales less cost of goods sold 2. income from operations, determined by gross profit less operating expenses 3. net income, determined by income from operations adjusted for non-operating items
question
Operating expenses
answer
classified into two sections: 1. selling expenses include the expenses of promoting sales by displaying and advertising merchandise, making sales, and delivering goods to customers 2. general and administrative expenses - support a company's overall operations and include expenses related to accounting, HR management, financial management. Expenses can be allocated between sections when they contribute to more than one.
question
Non-operating activities
answer
Other revenues and gains include revenues, losses, and gains that are unrelated to a company's operations. Include interest revenue, dividend revenues, rent revenues, gains from asset disposals. Other expenses and losses include interest expense, losses from asset disposals, casualty losses. When a company has no reportable non-operating activities, its income from operations is simply labeled net income.
question
Single-step income statement
answer
lists costs of goods sold as another expense and shows only one subtotal for total expenses. Expenses are grouped into very few, if any, categories.
question
Classified balance sheet
answer
reports merchandise inventory as a current asset, usually after accounts receivable according to an asset's nearness to liquidity.
question
Acid test ratio
answer
Acid-test ratio = [cash and cash equivalent + short-term investments + current receivables] / current liabilities
question
Acid-test ratio ; 1.0
answer
current liabilities exceed quick assets. Rule of thumb is that the acid-test ratio should have a value near, or higher than 1.0 to conclude that a company is likely to face near-term liquidity problems. Raises liquidity concerns unless a company can generate enough cash from inventory sales or if much of its liabilities are not due until late in the next period.
question
Acid-test ratio ; 1.0
answer
Hides liquidity problems if payables are due shortly and receivables are not collected until late in the next period.
question
Net sales
answer
Net sales = gross sales - sales discounts - sales returns and allowances
question
General and administrative expenses
answer
Expenses that support the overall operations of a business, and include the expenses related to accounting, human resource management, and financial management, are called ______.
question
ABC, Inc. buys $210,000 worth of XYZ, LLC supplies on credit terms of 2/10,n/30. Some of the goods are damaged in shipment, so ABC, Inc. returns $20,000 of the merchandise to XYZ, LLC/ How much must ABC, Inc. pay XYZ,LLC after the discount period?
answer
Original purchase - $210,000 Less: Purchase Returns: $20,000 Cost of inventory kept by ABC, $190,000 Less: Discount Amount: 3,800 Cost of Inventory with discount $186,200
question
ABC, Inc. buys $310,000 worth of XYZ, LLC supplies on credit terms of 3/10,n/30. Some of the goods are damaged in shipment, so ABC, Inc. returns $45,000 of the merchandise to XYZ, LLC/ How much must ABC, Inc. pay XYZ,LLC within the discount period?
answer
Cost of Inventory kept by ABC, Inc: $265,000 Less: Discount Amount : $7,950 Cost of Inventory with discount: $257,050
question
ABC, Inc. buys $185,800 worth of XYZ, LLC supplies on credit terms of 2/10,n/30. Some of the goods are damaged in shipment, so ABC, Inc. returns $18,530 of the merchandise to XYZ, LLC/ How much must ABC, Inc. pay XYZ,LLC after the discount period?
answer
Original purchase - $185,800 Less: Purchase Returns: $18,530 Cost of inventory kept by ABC, $167,270
