Studied by 0 peopleMerchandise
Refers to products, also called goods, which a company buys to resell. Merchandisers can be either wholesalers (those that buy from manufacturers and sell to retailers) or retailers (those that buy from manufacturers or wholesalers and sell to consumers).
Gross Profit
Revenue from selling merchandise (net sales) minus the cost of goods sold to customers.
Net Income
Determined by subtracting operating expenses from gross profit for a period.
Merchandise Inventory
A current asset representing products owned by a company and intended for sale. Includes costs of purchase, shipping, and preparation for sale.
Operating Cycle
Begins with purchasing merchandise for cash and ends with collecting cash from selling the merchandise.
Perpetual Inventory System
Updates accounting records for each purchase and sale of inventory, providing real-time information.
Periodic Inventory System
Updates accounting records for purchases and sales of inventory only at the end of a period.
Trade Discounts
Deductions from list price to determine the actual selling price, not entered into accounts.
Cash Discounts
Discounts offered to buyers for early payment of invoices.
Purchases Allowances
Reductions in the cost of defective merchandise acquired by a buyer.
Purchases Returns
Merchandise acquired by a buyer but returned to the seller.
FOB Shipping Point
Title transfers at shipping point, buyer pays shipping costs.
FOB Destination
Title transfers at destination, seller pays shipping costs.
Debit Memorandum
Informs the seller of a debit made to the seller's accounts payable in the buyer's records.
Contra Revenue Account
An account that is subtracted from sales revenue on the income statement.
Cost of Goods Sold
The cost of the inventory sold during a period, recorded as an expense on the income statement.
Sales Discounts
Reductions in selling price offered to buyers for early payment.
Sales Returns
Merchandise returned by a customer to the seller after a sale.
Sales Allowances
Reductions in the selling price of merchandise sold to customers, usually for damaged goods.
Loss from Defective Merchandise
The difference between the cost and estimated value of defective goods returned by customers.
Supplemental Records
Additional records used to collect information about specific cost elements for management evaluation and control.
Sales Returns and Allowances
Contra revenue account subtracted from Sales.
Credit Memorandum
Issued by the seller to inform buyer of a credit made to buyer's Accounts Receivable in seller's books.
Buyer Granted Allowances
Defective merchandise that buyer decides to keep, leading to a debit to Sales Returns and Allowances and a credit to Cash.
Adjusting Entries for Merchandisers
Includes updating inventory for shrinkage by debiting Cost of Goods Sold and crediting Inventory.
Sales Discounts, Returns, and Allowances
Adjustments made for expected sales discounts, returns, and allowances following new revenue recognition rules.
Multiple-Step Income Statement
Details net sales, gross profit, income from operations, and net income in separate sections.
Single-Step Income Statement
Lists cost of goods sold as an expense and shows only one subtotal for total expenses.
Classified Balance Sheet
Reports merchandise inventory as a current asset, usually after accounts receivable.
Acid-Test Ratio
Assesses company's liquidity by dividing quick assets by current liabilities, excluding less liquid current assets.
Gross Margin Ratio
Determines the percentage of gross profit in every sales dollar by dividing gross margin by net sales.
Adjusting Entries under New Revenue Recognition Rules
Includes adjustments for expected sales discounts and returns and allowances based on the new revenue recognition rules.
Net Method for Merchandising
Initial recording of invoice at a net amount after deducting cash discounts, with specific entries for purchases and sales in a perpetual inventory system.
Inventory
An asset owned by the company.
Perpetual Method
Inventory system maintaining continuous records of inventory levels, with specific journal entries for sales and purchases.
Periodic Method
Inventory system determining inventory levels only at the end of the accounting period, with adjustments reconciled at that time.
Note
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