ch 6 Flashcards
(18 cards)
what does cash include
cash deposited with banks as well as cash on hand (petty cash) and cash equivalents.
cash equivalents
short erm , highly liquid investments purcahsed within three months of maturity. - they are both redily convertible to known amounts of cash and so near to maturity that there is little risk theri value will cahnge
merchandisers carefully track their inventory transations to have info on
- inventory quantaties- so that managers can control inventory levels
- inventory costs, so managers can set appropriate selling prices
- sakes and related costs so FS can be prepared and used to evaluate the amount of profit generated
cost of goods sold
aftern inventory is sold its removed from the BS and reported on the IS as an expense called cost of goods sold
the difference between the selling price and the cost of goods sold is the gross profits earned
perpetual inventroy system
inventory records are updated “perpetually” everytime inventory is bought , sold or returned
periodic inventory system
invenotry records are updated “periodically” at the end of the accounting period ; the inventory must be physically counted
Inventory control
the best is perpetual - by knowing exactly what they have companies can better manage their invetory and save a great deal of money in financing and storage charges
shrinkage
perpetual inventory systems allows managers to estimate shrinkage- the term for loss of inventory from theft, fraud or error
calculate by: subtracting the cost of inventory counted from that recorded in the perpetual inventory system
you cant do this with periodic because we dont know how much is on hand
FOB free on board shipping point
a term of sale indicating that goods are owned by the customer the moment they leave the sellers premises
FOB destination
a term of sale indicating that goods are owned by the seller until they are delivered to the customer
every mercahndise sale has two components, each of which require s an entry in a perpetual inventory system
SELLING PRICE:increase in sales revenue and a carresponding increase in cash of CC. rECEIVABLE
Cost L cost incurred to initially buy the merchandise is removed from inventory and reported as an expense call cost of goods sold
what happens when sales are returned
make 2 entries to basiacally reverse the entries recorded- theyt do not directly reduce its sales revenue account instead they tracjs sakes returns and allowances in a contra-revenue account that is deducted from total sales revenue.
this allows them to track the customers satisfaction
sales discounts
a slaes price reduction given to customers for prompt payment of their account balance
what 2 transactions are made when customers take sales discounts
- the inital sale
2. the sales discount taken by customer
2/10
n/30
if pay within 10 days they get a 2% discount
the n/30 part implies that if payment is not made within the 10n days fay discount the full amount will be due in 30 days
dr. sales discount (+xR) CONTRA REVENUE ACCOUNT
MULTISTEP INCome statement
presents iportant subtotals sych as gross profit to help distinguish core oerating results from other, less significant items that affect net income
gross sales
net sales minus cost of goods sold. it is a subtotal , not an account also called gross margin
Gross profit percentage
a ratio indicating the percentage of profit earned on eaxh dollar of sales, after consideing the cost of products sold
a greater number means the conpant is selling p[roducts for a greater markup price - by comparing over time you can calculate if the increase gross profit was due to more revenue or gross profit per sale
