Chapter 5 Flashcards
(44 cards)
Gross Profit
difference between sales and cost of goods sold reported on the income statement as in intermediate amount
Operating Expenses
General expense category for selling and administrative costs
Sales Account
revenue account used for sales of merchandise recorded as cash or account receivable
Sales Returns and Allowances
debit to Sales Returns and Allowances credit to cash/accounts receivable *contra revenue account that is deducted from sales to yield net sales
Net Sales
sales - sales returns and allowances
Credit Memorandum
sales returns on account are issued this indicates that a customer’s Account Receivable: credited (reduced) payment for returned goods not expected
Allowance
discount instead of return of merchandise due to minor defect you can use a separate account from returns
List Price
Product catalogs or general list price may bear little relation to selling price before any discounts
Trade Discount
are not entered into accounting records not considered part to be part of sale because the exchange agreement was made on a reduced price customarily offered in “setting” the invoice amount
Invoice Price
list price - trade discounts amount usually recorded in accounting records
Credit Card Surcharge
merchants can record full amount of sale and recognize offsetting expense of surcharge
Open Account
standing agreement to extend credit for purchases between merchants
Cash or Sales Discount
Offer to give discount for prompt payment of open account terms vary: 2/10 n/30 2% discount is available if the purchaser pays the invoice within 10 days; otherwise, the net amount is expected to be paid within 30 days. terms placed in description of transaction in journal when paid cash and sales discount both debited accounts receivable credited
Inventory
Goods held for resale to others
Inventory Acquisition
first phase of merchandising cycle acquire goods to be stocked for resale to customer
periodic inventory system
easier to implement not as robust An inventory system that utilizes a Purchases account and does not update inventory with each sale; inventory is updated by physical count at the end of accounting periods
perpetual inventory system
involves more systemization far superior business management tool A “real-time” inventory system that updates inventory records with each purchase and sale
Transactions on Periodic Inventory System
Uses Purchases Account-
Purchases Account
not an expense or asset amount is total inventory purchased during a period apportioned between cost of goods sold on the income statement and inventory on the balance sheet based upon how much of purchased goods are resold vs how much in inventory
PURCHASE RETURNS AND ALLOWANCES to vendors
Account Payable - debit Purchase returns and allowances - credit Subtracted from purchases to calculate Net Purchases
Return Merchandise Authorization
customer may need from supplier to return
Debit Memorandum
when merchandise is returned to supplier indicates purchaser is to debit -AP credit” purchase returns and allowances
Cash Discounts with Vendor
sometime called purchase discounts typically favorable to purchaser same as other - 1/15, n/30 1% if paid in 15, net due in 30 days
Gross Method
method of recording purchases of inventory at inventory price (total gross or full invoice amount)
Purchase Discount is separate account When we get the discount: Accounts Payable: Debit Purchase Discounts & Cash: Credit purchase discounts - purchases =net purchases
