Merchandising and Inventory Vocabulary

Vocabulary terms and definitions related to merchandising accounting, inventory systems, and financial statement formats.

cash discount

A discount offered on merchandise sold to encourage prompt payment; it represents a sales discount to the seller and a purchase discount to the purchaser.

common size financial statements

Financial statements in which amounts are converted to percentages to allow a better comparison of period-to-period and company-to-company financial data on a common basis.

Cost of goods available for sale

Total costs paid to obtain goods and make them ready for sale, including beginning inventory plus purchases and transportation-in costs, minus purchase returns, allowances, and discounts.

FOB (free on board) destination

A term designating the seller as the responsible party for freight costs, also known as transportation-in costs.

FOB (free on board) shipping point

A term designating the buyer as the responsible party for freight costs, also known as transportation-in costs.

Gain

An increase in assets or decrease in liabilities resulting from peripheral or incidental transactions.

Gross margin

The difference between sales revenue and cost of goods sold; the amount made from selling goods before subtracting operating expenses.

Gross profit

The difference between sales revenue and cost of goods sold; the amount made from selling goods before subtracting operating expenses.

Loss

A decrease in assets or increase in liabilities resulting from peripheral or incidental transactions.

merchandise inventory

The supply of finished goods held for resale to customers.

merchandising businesses

Companies that buy and resell merchandise inventory.

multistep income statement

An income statement format that matches particular revenue items with expense items and distinguishes recurring operating activities from nonoperating items like gains and losses.

net sales

Sales less returns from customers and allowances or cash discounts given to customers.

operating income (or loss)

An income statement subtotal representing the difference between operating revenues and operating expenses before recognizing gains and losses from peripheral activities.

period costs

General, selling, and administrative costs that are expensed in the period in which the economic sacrifice is made.

periodic inventory system

A method of accounting for changes in the Inventory account only at the end of the accounting period.

perpetual inventory system

A method of accounting for inventories that increases the Inventory account each time merchandise is purchased and decreases it each time merchandise is sold.

product costs

All costs related to obtaining or manufacturing a product for sale; for manufacturing, these include direct materials, direct labor, and manufacturing overhead.

purchase allowances

A reduction in the cost of purchases resulting from dissatisfaction with merchandise purchased.

purchase discount

A reduction in the gross price of merchandise extended if the purchaser pays cash within a stated time, usually within $10$ days of the sale date.

purchase returns

A reduction in the cost of purchases resulting from dissatisfaction with merchandise purchased.

retail companies

Companies that sell goods to consumers.

sales discount

A cash discount extended by the seller to encourage prompt payment; the difference between the selling price and the cash collected when the buyer uses the discount.

sales returns and allowances

A reduction in sales revenue resulting from dissatisfaction with merchandise sold.

schedule of cost of goods sold

An internal report schedule that reflects the computation of the cost of goods sold amount under the periodic inventory system.

selling and administrative costs

Costs not directly traceable to products, such as advertising and rent, recognized as expenses in the period incurred.

shrinkage

A term reflecting decreases in inventory for reasons other than sales to customers.

single-step income statement

A single comparison between total revenues and total expenses.

transportation-in (freight-in)

The cost of freight on goods purchased under terms FOB shipping point; added to the cost of inventory as a product cost.

transportation-out (freight-out)

The freight cost for goods delivered to customers under terms FOB destination; treated as a period cost and expensed when incurred.

wholesale companies

Companies that sell goods to other businesses.

2/10, n/30

Expression meaning the seller allows a $2\%$ discount off the gross invoice price if the purchaser pays cash within $10$ days of purchase.