Accounting for Merchandising Operations

Flashcards covering key vocabulary and definitions about accounting for merchandising operations.

Merchandising Companies

Companies that sell products to earn revenue; examples include sporting goods, clothing, and auto parts stores.

Operating Cycle for a Merchandiser

Begins with the purchase of merchandise and ends with the collection of cash from the sale of merchandise.

Perpetual Inventory System

Records cost of goods sold at the time of each sale.

Periodic Inventory System

Records cost of goods sold at the end of the period.

Purchase Discount

A cash discount granted by sellers to encourage buyers to pay earlier.

Purchase Allowance

A price reduction to the buyer of defective or unacceptable merchandise.

Purchase Return

Merchandise returned by the purchaser to the supplier.

Sales of Merchandise

Each sales transaction for a seller of merchandise involves two parts (1) Revenue recorded (asset increased) from a customer and (2) Cost of goods sold incurred (asset decreased) to a customer.

Sales returns

Merchandise that customers return to the seller after a sale.

Sales allowances

Reductions in the selling price of merchandise sold to customers.

Shrinkage

Adjustment to reflect loss of merchandise.

New revenue recognition rules

Requires reporting of sales at net amount expected; adjusting entries are required for expected sales discounts and returns and allowances.

Multiple-Step Income Statement

A financial statement format that contains multiple steps in determining net income.

Single-Step Income Statement

A financial statement format that uses a single step in determining net income.

Acid-test ratio

Quick assets divided by current liabilities. A common rule of thumb is the acid-test ratio should have a value of at least 1.0

Gross Margin Ratio

Net sales less cost of goods sold divided by net sales; percentage of dollar sales available to cover expenses and provide a profit.

Periodic inventory system

Updates inventory only at the end of a period to reflect the quantity and cost of goods available and goods sold.

Net method (for purchases and sales)

Records invoice at its amount net of any discounts.