Chapter 4 Flashcards
(49 cards)
Ratio used to assess a company’s ability to settle its current debts with its most liquid assets; defined as quick assets (cash, short-term investments, and current receivables) divided by current liabilities.
ACID-TEST RATIO
quick assets / current liabilities
Reduction in the price of merchandise granted by a seller to a buyer when payment is made within the discount period.
CASH DISCOUNT
Cost of inventory sold to customers during a period; also called COST of SALES
COST OF GOODS SOLD
beginning inventory \+ cost of goods purchased = goods available for sale - ending inventory = cost of goods sold
Notification that the sender has credited the recipient’s account in the sender’s records.
CREDIT MEMORADUM
Time period that can pass before a customer’s payment is due.
CREDIT PERIOD
Description of the amounts and timing of payments that a buyer (debtor) agrees to make in the future.
CREDIT TERMS
Notification that the sender has debited the recipient’s account in the sender’s records.
DEBIT MEMORANDUM
Time period in which a cash discount is available and the buyer can make a reduced payment.
DISCOUNT PERIOD
Abbreviation used to describe credit terms and transactions.
EOM (END OF the MONTH)
Abbreviation describing the point when ownership of goods passes to the buyer.
FOB (FREE ON BOARD)
Expenses that support the operating activities of a business.
GENERAL & ADMINISTRATIVE EXPENSES
Net sales minus costs of goods sold; also called GROSS PROFIT.
GROSS MARGIN
Gross margin (net sales minus costs of goods sold) divided by net sales; also called GROSS PROFIT RATIO.
GROSS MARGIN RATIO
gross margin / net sales
Another name for GROSS MARGIN.
GROSS PROFIT
Goods a company owns and expects to sell in its normal operations.
INVENTORY
Catalog (full) price of an item before any trade discount is deducted.
LIST PRICE
Goods that a company owns and expects to sell to customers.
MERCHANDISE or MERCHANDISE INVENTORY
beginning inventory
+ net purchases
= merchandise for sale
ending inventory
+ cogs
= merchandise for sale
Entity that earns net income bu buying and selling merchandise.
MERCHANDISER
Income statement format that shows subtotals between sales and net income, categorizes expenses, and often reports the details of net sales & expenses.
MULTIPLE-STEP INCOME STATEMENT
Method that records the cost of inventory purchased but does not continuously track the quantity available or sold to customers; records are updated at the end of each period to reflect the physical count and costs of goods available.
PERIODIC INVENTORY SYSTEM
Method that maintains continuous records of the cost of inventory available and the cost of goods sold.
PERPETUAL INVENTORY SYSTEM
Term used by a purchaser to describe a cash discount granted to the purchaser for paying within the discount period.
PURCHASE DISCOUNT
Intermediary that buys products from manufacturers or wholesalers and sells them to consumers.
RETAILER
Term used by a seller to describe a cash discount granted to buyers who pay within the discount period.
SALES DISCOUNT
