Chapter 5 Flashcards
(12 cards)
Merchandising Companies
Buy and sell goods rather than perform services as their primary source of revenue
the primary source of revenues is referred to as sales revenue or sales
Wholesaler
sell to retailers
Retailer
purchase and sell directly to consumers
perpetual system
- maintain detailed records of the cost of each inventory purchase and sale
- records continuously show inventory that should be on hand for every item
- company determines cost of goods sold each time a sale occurs
periodic system
- do not keep detailed records of the goods on hand
2. costs of goods sold determined by count at the end of the accounting period
advantage of the perpetual system
- traditionally used for merchandise with high unit values
- shows the quantity and cost of the inventory that should be on hand at any time
- provides better control over inventories than a periodic system
FOB shipping point
- ownership of the goods passes to the buyer when the public carrier accepts the goods from the seller
- buyer pays freight costs
FOB Destination
- Ownership of the goods remains with the seller until the goods reach the buyer
- seller pays freight costs
purchase return
return goods for credit if the sale was made on credit, or for a cash refund if the purchase was for cash
purchase allowance
may choose to keep the merchandise if the seller will grant a reduction from the purchase price
credit terms
may permit buyer to claim a cash discount for prompt payment
example : 2/10, n/30
credit terms advantages
- purchaser saves money
2. seller shortens the operating cycle by converting the accounts receivable into cash earlier