Exam 2 Chapter 4 Accounting for Merchandising Operations

Service companies

Sell time to earn revenue

Merchandising companies

sell products to earn revenue

Operating cycle of a merchandiser

Purchases, Merchandise Inventory, Credit Sales, Accounts Receivable, Cash Collection (repeat)

Perpetual systems

Records cost of goods sold at the time of each sale

Periodic systems

Record costs of goods sold at the end of the period

Credit terms

Sellers can grant a cash discount to encourage buyers to pay earlier

Purchase Discount

2/10, n/30

Purchase Allowance

A price reduction to the buyer of defective or unacceptable merchandise

Purchase return

Merchandise returned by the purchaser to the supplier

Sales discount

Can benefit a seller by decreasing the delay in receiving cash and reducing future collection efforts

Sales returns

Merchandise that customers return to the seller after a date

Sales allowances

Reductions in selling price of merchandise sold to customers

Inventory Cost Flow Equation

Net purchases + Beginning Inventory = Merchandise available for sale = COGS + Ending Inventory