Learn: Accounting: Merchandising Operations and Income Statements

Contra revenue account

An account that is offset against a revenue account on the income statement.

Cost of goods sold

The total cost of merchandise sold during the period.

FOB destination

Freight terms indicating that the seller places the goods free on board to the buyer's place of business, and the seller pays the freight.

FOB shipping point

Freight terms indicating that the seller places goods free on board the carrier, and the buyer pays the freight costs.

Gross profit

The excess of net sales over the cost of goods sold.

Gross profit rate

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

Income from operations

Income from a company's principal operating activity, determined by subtracting cost of goods sold and operating expenses from gross profit.

Multiple-step income statement

An income statement that shows several steps in determining net income.

Net sales

Sales revenue less sales returns and allowances and sales discounts.

Nonoperating activities

Various revenues, expenses, gains, and losses that are unrelated to a company's main line of operations.

Operating expenses

Expenses incurred in the process of earning sales revenue.

Other revenues and gains

A nonoperating-activities section of the income statement that shows revenues and gains unrelated to the company's main line of operations.

Other expenses and losses

A nonoperating-activities section of the income statement that shows expenses and losses unrelated to the company's main line of operations.

Periodic inventory system

An inventory system under which the company does not keep detailed inventory records in the Inventory account throughout the accounting period but determines the cost of goods sold only at the end of an accounting period.

Perpetual inventory system

An inventory system under which the company keeps detailed records of the cost of each inventory purchase and sale in the Inventory account, and the records continuously show the inventory that should be on hand.

Purchase allowance

A deduction made to the selling price of merchandise, granted by the seller so that the buyer will keep the merchandise.

Purchase discount

A cash discount claimed by a buyer for prompt payment of a balance due.

Purchase invoice

A document that supports each credit purchase.

Purchase return

A return of goods from the buyer to the seller for a cash or credit refund.

Sales discount

A reduction given by a seller for prompt payment of a credit sale.

Sales invoice

A document that supports each credit sale.

Sales returns and allowances

Purchase returns and allowances from the seller's perspective. See Purchase return and Purchase allowance.

Sales revenue (Sales)

The primary source of revenue in a merchandising company.

Single-step income statement

An income statement that shows only one step in determining net income.