Merchandising Company Income Reporting and Transactions

These flashcards cover crucial terminology related to merchandising company operations, inventory accounting, and financial metrics.

Merchandising Company

A business that sells products to earn revenue.

Income Components

The different sources of income generated by a merchandising company, primarily from sales.

Operating Cycle

The period that begins with the purchase of merchandise and ends with the collection of cash from the sale.

Inventory Systems

Methods used to track inventory, including perpetual and periodic systems.

Perpetual System

An inventory system that continuously updates inventory records for every purchase and sale.

Periodic System

An inventory system that updates inventory records only at the end of the accounting period.

Credit Terms

Conditions under which a buyer can purchase goods or services with an agreement to pay later, often involving discounts for early payment.

Sales Discount

A reduction from the invoice price granted to induce early payment.

Gross Profit

The difference between net sales and the cost of goods sold.

Net Income

The total earnings of a company after all expenses have been deducted from revenue.

Purchase Return

Merchandise returned by the purchaser to the supplier.

Purchase Allowance

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

Cost of Goods Sold (COGS)

The direct costs attributable to the production of the goods sold by a company.

Acid-Test Ratio

A financial metric to measure a company's immediate short-term liquidity, calculated as (Cash + Short-term investments + Receivables) / Current liabilities.

Gross Margin Ratio

A profitability metric showing the percentage of revenue exceeding the cost of goods sold, calculated as (Net sales - Cost of goods sold) / Net sales.