Accounting unit 3 terms

Contra revenue account

An account with the opposite balance compared with its related revenue account, which has a credit balance.

Control account

An account in the general ledger that summarizes the detail for a subsidiary ledger and controls it.

Cost of goods available for sale

The cost of the goods on hand at the beginning of the period plus the cost of goods purchased during the period.

Cost of goods purchased

Net purchases plus freight in.

Cost of goods sold

The total cost of merchandise sold during the period.

FOB destination

A freight term indicating that the buyer accepts ownership when the goods are delivered to the buyer's place of business.

FOB shipping point

A freight term indicating that the buyer accepts ownership when the goods are placed on the carrier by the seller.

Function (in accounting)

A method of classifying expenses on the income statement based on business functions.

Gross profit

Sales revenue minus cost of goods sold.

Gross profit margin

Gross profit expressed as a percentage of net sales.

Gross sales

Total sales before deducting the contra revenue accounts.

Multiple-step income statement

An income statement that shows several steps to determine profit or loss.

Nature (in accounting)

A method of classifying expenses on the income statement based on what the resources were spent on.

Net purchases

Purchases minus purchase returns and allowances and purchase discounts.

Net sales

Sales minus sales returns and allowances and sales discounts.

Non-operating activities

Other revenues and expenses that are unrelated to the company's main operations.

Operating expenses

Expenses incurred in the process of earning sales revenues.

Periodic inventory system

An inventory system where detailed inventory records are not updated continuously.

Perpetual inventory system

An inventory system where detailed records are updated continuously.

Profit from operations

Profit from a company's main operating activity after subtracting operating expenses from gross profit.

Profit margin

Profit expressed as a percentage of net sales.

Profitability ratios

Measures of a company's profit or operating success for a specific period.

Purchase discount

A discount for early payment of a balance due.

Purchase returns (allowances)

The return, or reduction in price, of unsatisfactory merchandise that was purchased.

Quantity discount

A cash discount given to the buyer for volume purchases.

Sales discount

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

Sales returns (allowances)

The return, or reduction in price, of unsatisfactory merchandise that was sold.

Sales revenue

The main source of revenue in a merchandising company.

Single-step income statement

An income statement that shows only one step in determining profit or loss.

Subsidiary ledger

A group of accounts that give details for a control account in the general ledger.