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Flashcards in Chapter 5 Deck (28):
1

Retailers

Merchandising companies that purchase and sell directly to consumers

2

Wholesalers

Merchandising companies that sell to retailers

3

Sale/sale revenue

Primary source of revenues for merchandising companies is the sale of merchandise

4

Cost of goods sold

total cost of merchandise sold during the period

5

Operating cycle

of merchandising com pay is LONGER than that of service company

6

Flow of costs-Perpetual inventory system

Companies maintain detailed records of the cost of each inventory purchase and sale

7

Purchase invoice

total purchase price and other relevant information

8

Freight cost: FOB shipping point

The seller places the goods free on board the carrier, and the buyer pays the freight cost (Debit inventory to buyer)

9

Freight cost: FOB destination

The seller places the goods free on board to the buyers place of business, and the seller pays the freight cost (Debit operating expense to seller)

10

Purchase return

Customer wasn't satisfied with good.
Get credit or cash back

11

Purchase allowance

Purchaser choses to keep merchandise if the seller is willing to grand reduction in price

12

Purchase Discounts

Claim cash discount for prompt payment (advantage for both parties)

13

Credit terms

specify the amount of cash discount and time period during which it is offered

14

2/10

2% cash discount if paid in 10 days

15

1/10 EOM

1% cash discount available if paid with in the first 10 days of next month

16

n/30

Net amount in 30 days??

17

Paying interest

If discount is passed up it is equivalent to paying an interest rate

18

Sales Returns Allowances (Seller)

transactions where the seller either accepts goods back from purchaser (return) or grants a reduction (allowance0

19

Contra accounts:

accumulated depreciation and sales, returns, allowances

20

Single-Step income statement

Total expense-Total revenue=net income

21

Multiple- Step income statement (more useful)

highlights components of net income
1. gross profit
2. income from operations
3. net income

22

Gross Profit Ratio

Gross profit(sales revenue-cost of goods) /net sales=%
decrease in ratio implies
1. selling products with lower mark ups
2. increased competition leads to lower selling price
3. company is forced to pay higher prices to its suppliers without being able to pass these cost to consumers

23

Profit Margin Ratio

Net income/ Net sales
higher than 1=good- using conservative techniques
Lower than 1=bad-using aggressive acc techniques

24

Profit Margin Ratio #2

Net cash provided by operating activities/ net income
above 1=good below 1=bad

25

Gross profit=

net sales-cost of goods

26

Income from operations=

Gross profit-operating expense

27

Net income (multiple income statement)=

Income from operations-other expenses + other revenues

28

Net sales=

Sales Revenue- Sales Returns/Allowances/Discounts