Accounting for Merchandising Operations

These flashcards cover key terms and concepts related to merchandising operations in accounting.

Merchandising Company

A company that sells products to earn revenue.

Operating Cycle

The period from the purchase of merchandise to the collection of cash from its sale.

Acid-Test Ratio

A measure of a company’s short-term liquidity; a ratio of at least 1.0 indicates good financial health.

Gross Margin Ratio

The percentage of sales revenue remaining after the cost of goods sold is deducted; indicates a company's financial health.

Sales Discounts

Reductions in the price of goods sold to encourage early payment.

Perpetual Inventory System

An inventory system that continuously updates inventory records for each purchase and sale.

Periodic Inventory System

An inventory system that updates inventory records only at the end of a period.

Purchase Allowance

A price reduction given to buyers for defective or unacceptable merchandise.

Sales Returns

Merchandise returned by customers after a sale.

Closing Entries

Entries made at the end of accounting periods to close temporary accounts.