ch5 keywords

Comprehensive income

The total change in the shareholders' equity of the entity from non-owner sources, including net income and other comprehensive income.

Contra expense account

An account that offsets an expense account on the statement of income. Examples include Purchase Returns and Allowances and Purchase Discounts.

Contra revenue account

An account that offsets a revenue account on the statement of income, examples include sales returns and allowances and sales discounts.

Cost of goods available for sale

The sum of beginning inventory and the cost of goods purchased.

Cost of goods purchased

The sum of net purchases and freight in.

Cost of goods sold

The total cost of inventory sold during the period, calculated and recorded in a perpetual system for each sale or at the end of the accounting period in a periodic system.

Estimated inventory returns

The estimated cost of inventory expected to be returned by customers.

FOB (free on board) destination

Freight terms indicating the seller pays for shipping and is responsible for goods until they arrive at the destination.

FOB (free on board) shipping point

Freight terms indicating the seller is responsible for goods only until they reach the shipping point; the buyer pays for shipping from there.

Function (classifying expenses by)

A method of organizing expenses on the income statement by the activity for which they were incurred.

Gross profit

Sales revenue less cost of goods sold.

Gross profit margin

Gross profit expressed as a percentage of sales, calculated by dividing gross profit by sales.

Income from operations

The results of a company's normal operating activities, calculated as gross profit less operating expenses.

Multiple-step statement of income

A statement of income that shows multiple steps to determine net income or loss.

Nature (classifying expenses by)

A method of organizing expenses on the income statement by their natural classification.

Net purchases

Purchases less purchase returns and allowances and purchase discounts.

Operating expenses

Expenses incurred in the process of earning sales revenue, deducted from gross profit.

Other comprehensive income

Gains and losses affecting shareholders' equity not shown in net income.

Periodic inventory system

An inventory system without detailed records, determining ending inventory and cost of goods sold only at period end.

Perpetual inventory system

An inventory system that maintains continuous records of the inventory quantity and cost.

Profit margin

Net income as a percentage of sales, calculated by dividing net income by sales.

Purchase allowances

An allowance granted by the seller when a buyer is dissatisfied but agrees to keep the merchandise.

Purchase discount

A price reduction to encourage early payment of a credit purchase.

Purchase returns

Cash refunds or credits for goods returned by the buyer.

Refund Liability

Account tracking expected sales returns and allowances.

Sales

Revenue from the sale of inventory.

Sales discounts

A price reduction for early payment of a credit sale.

Sales returns and allowances

Cash refunds or credits for returned goods or goods kept despite dissatisfaction.

Shrinkage

Loss of inventory due to theft or spoilage.

Single-step statement of income

A statement showing only one step in determining income before income tax.

Statement of comprehensive income

A financial statement presenting net income and other comprehensive income for a specific period.