Chapter 4 Terminology

Question 1

Merchandise

Answer 1

Refers to products that a company buys to resell.

Question 2

Merchandiser

Answer 2

Earns net income by buying and selling merchandise

Question 3

Wholesaler

Answer 3

Buys products from manufacturers and sells them to retailers

Question 4

Retailers

Answer 4

Buy products from manufactures or wholesalers and sells them to customers

Question 5

Revenue from selling merchandise is called sales, and the expense of buying and preparing merchandise is called ___________.

Answer 5

Cost of goods sold.

Question 6

Gross profit or gross margin

Answer 6

Is net sales minus cost of goods sold

Question 7

Merchandise inventory, or simply inventory

Answer 7

Refers to products that a company owns and intends to sell.

Question 8

Perpetual inventory system

Answer 8

Records cost of goods sold at the time of each sale.

Question 9

Periodic inventory system

Answer 9

Records cost of goods sold at the end of the period.

Question 10

Credit terms

Answer 10

Includes the amounts and timings of payments from a buyer to a seller.

Question 11

A buyer views a cash discount as a _____.

Answer 11

Purchase discount.

Question 12

A seller views a discount as a:

Answer 12

Sales discount

Question 13

Gross method

Answer 13

Records the purchase at its gross (full) invoice amount.

Question 14

FOB (free on board) point

Answer 14

When ownership transfers from the seller to the buyer

Question 15

Supplementary records

Answer 15

Information outside the usual ledger accounts.

Question 16

The perpetual accounting system requires that:

Answer 16

Each sales transaction for a merchandiser, whether for cash or on credit, has two entries: one for revenue and one for cost.

Question 17

Net method

Answer 17

Records sales at the net amount, which assumes all discounts are taken.

Question 18

Shrinkage

Answer 18

The loss of inventory

Question 19

Multiple-step income statement

Answer 19

details net sales and expenses and reports subtotals for various types of items.

Question 20

Selling expenses

Answer 20

Costs to market and distribute products and services such as advertising of merchandise.

Question 21

General and administrative expenses

Answer 21

Costs to administer a company, such as office salaries and office equipment.