Ch 5 Vocabulary Flashcards
(27 cards)
Contra expense account
An account that is offset against (reduces) an expense account on the income statement. Examples include purchase returns and allowances and purchase discounts. p 245
Contra revenue account
an account that is offset against (reduces) a revenue account on the income statement. Examples include sales returns and allowances and sales discounts. p 233
Cost of goods available for sale
The sum of beginning inventory and the cost of goods purchased. p 226
Cost of goods purchased
The sum of net purchases and freight in. p 227
Cost of goods sold
The total cost of merchandise sold during the period. In a perpetual inventory system, it is calculated at the end of the accounting period by deducting ending inventory from the cost of goods available for sale. p 224
FOB (free on board) destination
Freight terms indicating that the seller will pay for the shipping costs of the goods until they arrive at their destination (normally the buyer’s place of business) p 228
FOB (free on board) shipping point
Freight terms indicating that the seller is responsible for the goods only until they reach their shipping point (normally the seller’s place of business). The buyer will pay for the shipping of the goods from the shipping point until they arrive at their destination p 228
Function
A method of organizing expenses on the income statement by way of the activity (business function) for which they were incurred (such as cost of goods sold, administrative, and selling) p 237
Gross profit
Sales revenue less cost of goods sold. o 224
Gross profit margin
Gross profit expressed as a percentage of sales. It is calculated by dividing gross profit by net sales. p 241
Gross sales
Total sales before deducting any sales returns and allowances and sales discounts. p 235
Multiple-step income statement
An incomes statement that shows several steps to determine profit or loss. p 237
Nature
A method of organizing expenses on the income statement by way of their natural classification (such as salaries, transportation, depreciation, and advertising). P 237
Net purchases
Purchases less purchase returns and allowances and purchase discounts. p 246
Net sales
Gross sales less sales returns and allowances and sales discounts. p 235
Operating expenses
Expenses incurred in the process of earning sales revenue. They are deducted from gross profit to arrive at profit from operations. p 224
Periodic inventory system
An inventory system in which detailed records are not maintained and the ending inventory and cost of goods sold are determined only at the end of the accounting period. p 226
Perpetual inventory system
A detailed inventory system in which the quantity and cost of each inventory item is maintained. The records continuously show the inventory that should be on hand and the cost of the items sold. p 225
Profit from operations
The results of a company’s normal operating activities. It is calculated as gross profit less operating expenses. p 239
Profit margin
Profit expressed as a percentage of net sales. It is calculated by dividing profit by net sales. p 242
Purchase discount
A price reduction, based on the invoice price less any returns and allowances, claimed by a buyer for early payment of a credit purchase. p 230
purchase returns and allowances
A return of goods for cash or credit, or a deduction granted by the seller on the selling price of unsatisfactory merchandise. p 229
Quantity discount
A price reduction that reduces the invoice price and is given to the buyer for volume purchases. p 230
Sales discount
A price reduction that is based on the invoice price less any returns and allowances and is given by a seller for early payment of a credit sale. p 234
