Chapter 5: Merchandising Operations and Multi-step Income Statement Flashcards Preview

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Flashcards in Chapter 5: Merchandising Operations and Multi-step Income Statement Deck (26)
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1
Q

Comprehensive income

A

An income measure that includes gains and losses that are excluded from the determination of net income.

2
Q

Comprehensive income statement 

A

A statement that presents items that are not included in the determination of net income, referred to as other comprehensive income.

3
Q

Contra revenue account 

A

An account that is offset against a revenue account on the income statement.

4
Q

Cost of goods sold (GOGS)

A

The total cost of merchandise sold during the period.

1) Beginning Inventory
2) Add purchases (add freight in, subtract discounts, and returns/allowances)
3) Available to sell
4) Ending Inventory
5) COGS

5
Q

Gross profit rate 

A

Gross profit expressed as a percentage by dividing the amount of gross profit by net sales.

Gross profit/Net sales

6
Q

Gross profit

A

Gross Profit = Sales - COGS

7
Q

Net sales

A

Sales - sales returns and allowances and sales discounts

8
Q

Periodic inventory system

A

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

  • COGS determined at end of accounting period
  • Does NOT follow inventory
  • Purchases of merchandise are recorded in the purchases account rather than the inventory account
9
Q

Perpetual inventory system 

A

A detailed inventory system in which a company maintains the cost of each inventory item, and the records continuously show the inventory that should be on hand.

  • Follows and records inventory in detail
  • Purchases of merchandise for sale are recorded in Inventory
  • COGS recorded each time a sale occurs
10
Q

Profit margin

A

Measures the percentage of each dollar of sales that results in net income, computed by dividing net income by net sales.

Net income/net sales

11
Q

Purchase allowance 

A

A deduction made to the selling price of merchandise, granted by the seller, so that the buyer will keep the merchandise.

12
Q

Purchase discount

A

A cash discount claimed by a buyer for prompt payment of a balance due.

13
Q

Purchase invoice

A

A document that provides support for each purchase.

14
Q

Purchase return

A

A return of goods from the buyer to the seller for cash or credit.

15
Q

Quality of earnings ratio 

A

A measure used to indicate the extent to which a company’s earnings provide a full and transparent depiction of its performance; computed as net cash provided by operating activities divided by net income

= Net cash/net income

<1 = indicates aggressive techniques
>1= indicates conservative techniques
16
Q

Sales discount

A

A reduction given by a seller for prompt payment of a credit sale.

17
Q

Sales invoice 

A

A document that provides support for each sale.

18
Q

Sales returns and allowances 

A

Transactions in which the seller either accepts goods back from the purchaser (a return) or grants a reduction in the purchase price (an allowance) so that the buyer will keep the goods.
- A purchaser, dissatisfied with merchandise received, may return the goods to the seller for credit.

19
Q

Sales revenue

A

Primary source of revenue for a merchandising company.

20
Q

Merchandise company

A

Sells products they didn’t create

  • Income statement includes: Sales revenue, cost of goods sold, and gross profit
  • Ex: Wal-Mart
21
Q

Business documents

A

Cash register tapes
Sales invoice
Canceled check

22
Q

2/10, n/30

A

2% reduction for ten days and if not paid in ten days then net amount within 30 days

23
Q

Merchandise inventory

A

Merchandise owned by the company and in a form ready for sale to customers in the ordinary course of business

24
Q

Manufacturing company

A

Sells products that they create

  1. Raw Materials
  2. Work in process
  3. Finished goods
25
Q

Service company

A

Don’t sell products, provide services

26
Q

3 types of companies:

A
  1. Merchandising companies: Those who sell products that have already been produced by someone else
  2. Manufacturing companies: Those who sell products they create
  3. Service companies: Those that don’t sell products but provide services