Chapter 4 Fact Cards Flashcards

What formula calculates Gross Profit or Gross Margin?

Sales minus Cost of Goods Sold.

What does Beginning Inventory plus Purchases equal?

Goods Available for Sale.

How do you calculate Net Sales?

Sales minus Sales Discount minus Sales Returns and Allowances.

As a purchaser, which three accounts will you use?

Inventory, Accounts Payable, and Cash.

When do Purchase or Sales Discounts apply?

To the net balance that is due on the date the payment is made.

Who is responsible for shipping costs under FOB Destination?

Sellers own the inventory in transit and are responsible for shipping costs.

Who is responsible for shipping costs under FOB Shipping Point?

Purchasers own the inventory in transit and are responsible for shipping costs.

What does the Inventory account capture?

All costs necessary to purchase, deliver, and make ready goods for sale.

What does Cost of Goods Sold capture?

All inventory expenses.

When is Cost of Goods Sold triggered?

When inventory is sold.

What happens when a purchaser pays for shipping?

Inventory is debited.

What happens when a seller pays for shipping?

Shipping Expense is debited.

What is true about single-step income statements?

They have one subtotal for revenues and one subtotal for expenses.

What is true about multi-step income statements?

They will subtotal revenues and expenses for each division in the company.

How do you calculate Ending Inventory?

Beginning Inventory plus Purchases minus Cost of Goods Sold.

What is the equation for Net Income?

Gross Profit minus Other Expenses.