question

Wholesaler

answer

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

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Retailers

answer

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

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Vendor

answer

The individual or business from whom a company purchases goods.

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Cost of Good Sold (COGS)

answer

the coat of the merchandise inventory that the business has sold to customers.

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Gross Profit

answer

Excess of net Sales Revenues over Cost of Goods Sold.

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Operating Expense

answer

Expenses, other than Cost of Goods Sold, that are incurred in the entity's major ongoing operations.

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Periodic Inventory System

answer

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

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Perpetual Inventory System

answer

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

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Invoice

answer

A seller's request for payment from the purchaser.

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Purchase Discount

answer

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

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Credit Terms

answer

The payment terms of purchaser or sale as stated on the invoice.

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Purchase Return

answer

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

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Purchase Allowance

answer

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

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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.

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FOB Destination

answer

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

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Freight In

answer

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

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Freight Out

answer

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

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Sales Revenue

answer

The amount that a merchandiser earns from selling its inventory.

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Sales Discounts

answer

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

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Sales Returns and Allowances

answer

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

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Net Sales Revenue

answer

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

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Inventory Shrinkage

answer

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

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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.

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Multi-Step Income Statement

answer

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

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Selling Expenses

answer

Expenses related to marketing and selling the company's goods and services.

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Administrative Expenses

answer

Expenses incurred that are not related to marketing the company's goods and services.

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Operating Income

answer

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

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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.

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Income Tax Expense

answer

Expense incurred by a corporation related to federal and state income taxes.

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Gross Profit Percentage

answer

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

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Net Purchases

answer

Purchases less purchases returns and allowances less purchase discounts.

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Consistency Principle

answer

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

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Disclosure Principle

answer

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

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Materiality Concept

answer

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

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Conservatism

answer

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

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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.

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Specific Identification Method

answer

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

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Cost of Goods Available for Sale

answer

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

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Last-In, First-Out (LIFO) Method

answer

An inventory costing method in which the last cost 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.

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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.

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

answer

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

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Inventory Turnover

answer

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

question

Day's Sales in Inventory

answer

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

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Internal Control

answer

The organizational plan and all the related measures adopted by an entity to safeguard assets, encourage employees to follow company policies, promote operational efficiency, and ensure accurate and reliable accounting records.

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Public Company

answer

A company that sells its stock to the general public.

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Sarbanes-Oxley Act

answer

Requires companies to review internal control and take responsibility for the accuracy and completeness of their financial reports.

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Internal Control Report

answer

A report by management describing its responsibility for and the adequacy of internal controls over financial reporting.

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Internal Auditor

answer

An employee of the business who ensures the company's employees are following company policies, that the company meets all legal requirements, and that operations are running efficiently.

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External Auditor

answer

An outside accountant, completely independent of the business, who evaluates the controls to ensure that the financial statements are presented fairly in accordance with GAAP.

question

Separation Duties

answer

Dividing responsibilities between two or more people to limit fraud and promote accuracy of accounting records.

question

Encryption

answer

Rearranging plain-text messages by a mathematical process-the primary method of achieving security in e-commerce.

question

Merchandiser

answer

A business that sells merchandise, or goods, to customers.

question

Merchandiser Inventory

answer

The merchandise that a business sells to customers.

question

Firewall

answer

A device that enables members of a local network to access the network, while keeping nonmembers out of the network.

question

Collusion

answer

Two or more people working together to circumvent internal controls and defraud a company.

question

Remittance Advice

answer

An optional attachment to a check that tells the business the reason for the payment.

question

Lock-Box System

answer

A system in which customers send their checks to a post office box that belongs to a bank. A bank employee empties the box daily and records the deposits into the company's bank account.

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Evaluated Receipts Settlement (ERS)

answer

A procedure that compresses the payment approval process into a single step by comparing the receiving report to the purchase order.

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Electronic Data Interchange (EDI)

answer

A streamlined process that bypasses paper documents altogether. Computers of customers communicate directly with the computers of suppliers to automate routine business transactions.

question

Petty Cash

answer

A fund containing a small amount of cash that is used to pay for minor expenditures.

question

Imprest System

answer

A way to account for petty cash by maintaining a constant balance in the petty cash account. At any time, cash plus petty cash tickets must total the amount allocated to the petty cash fund.

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Signature Card

answer

A card that shows each authorized person's signature for a bank account.

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Deposit Ticket

answer

A bank form that is completed by the customer and shows the amount of each deposit.

question

Check

answer

A document that instructs a bank to pay that designated person or business a specified amount of money.

question

Maker

answer

The party who issues the check.

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Payee

answer

The individual or business to whom the check is paid.

question

Routing Number

answer

On a check, the 9-digit number that identifies the bank upon which the payment is drawn.

question

Account Number

answer

On a check, the number that identifies the account upon which the payment is drawn.

Financial Accounting: Chapters 4-6 – Flashcards

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