Unit 8 Flashcards
What does a merchandise business do?
Sell inventory
What is a retail company?
A type of merchandising business that buys inventory from a wholesaler and resells it at a higher price
What are the 2 types of inventory systems? Describe each + their pros and cons
Perpetual inventory system: Inventory is updated whenever a transaction occurs
- Pros: more efficient and reliable, get instant info about quantities/costs of inventory
Periodic inventory system: Inventory is updated at certain times during accounting period (e.g. when decisions are to be made)
- Pros: less expensive to set up in the past because technology was costly
Name 3 examples of technology that might be used in a perpetual inventory system
POS terminals
Computerized cash registers
Scanners
Which inventory system is most often used by companies?
Perpetual
What type of business sells inventory to merchandising companies?
Wholesalers
4 reasons for returning inventory
Unsatisfied with inventory (e.g. poor quality, didn’t meet specifications, etc)
Inventory was defective (e.g. broken)
Difficult to resell (low demand)
Competitors offering lower price
Define discount
Amount deducted from the price of inventory sold
Define purchase discount
Offered to a buyer who makes a purchase on account and pays within the discount period
Define quantity discount
Discount on bulk purchases
Define purchase allowance
Reduction in the price of unsatisfactory inventory that was purchased (provided as an incentive for the buyer to keep the inventory)
What are 5 accounts used to record transactions for a merchandising business? Describe each.
Merchandise inventory (short-term asset)
Cost of goods sold (expense)
Sales (revenue)
Sales discount (contra-revenue)
Sales returns and allowance (contra revenue)
What source documents are used to record the sale of inventory?
Cash sales slip
Sales invoice
How is profit calculated for a merchandising business?
Net sales - cost of goods sold = gross profit
Gross profit - operating expenses = profit (or loss)
How are net sales calculated?
Net sales = sales - sales returns and allowances - sales discounts