Accounting for Merchandising Operations: Chapter 5 Overview

This set of flashcards reviews essential vocabulary and concepts from the lecture on accounting for merchandising operations.

Merchandising Operations

Business activities involved in buying and selling goods.

Sales Revenue

The primary source of revenue for merchandising companies.

Cost of Goods Sold

The total cost of merchandise sold during a period.

Operating Cycle

The time period required for a company to buy inventory, sell it, and receive cash from customers.

Perpetual Inventory System

An inventory system that keeps detailed records of the cost of each inventory purchase and sale.

Periodic Inventory System

An inventory system that updates the inventory balance at the end of an accounting period.

Gross Profit

Sales revenue minus Cost of Goods Sold.

Freight Costs

Expenses related to the transportation of goods.

Purchase Returns

Items returned to the supplier due to dissatisfaction.

Purchase Allowance

An amount deducted from the purchase price for damaged goods that are retained.

Purchase Discounts

A reduction in the cost of inventory if payment is made within a specified time frame.

Journal Entry

A record of the economic event in the accounting system.

Accounts Payable

Liabilities for goods and services purchased on credit.

Sales Returns and Allowances

Contra-revenue accounts that reduce sales revenue.

Contra-Revenue Account

An account that offsets or reduces the revenue account.

Inventory Control

The process of managing and overseeing the ordering, storage, and use of inventory.

Operating Expenses

Expenses associated with running the daily operations of the business.

Income Statement

Financial statement showing income, expenses, and profits over a period.

Multiple-Step Income Statement

An income statement that shows multiple steps in calculating net income.

Adjusting Entries

Entries made at the end of the accounting period to update account balances.

Closing Entries

Entries made to transfer balances from temporary accounts to permanent accounts.

Net Income

The total revenue minus total expenses.

Inventory Shrinkage

Loss of inventory due to theft, damage, or errors.

Accounting Cycle

The steps in the accounting process from the initiation of a transaction to the preparation of financial statements.

Cash Discount

A reduction in the invoiced amount offered to encourage early payment.

Freight-Out

Delivery expense for goods sold to customers.

Sales Discounts

A reduction in sales revenue for prompt payment.

Merchandising Company

A business that sells goods to earn a profit.

Goods Available for Sale

The total inventory available for sale during a period.

Beginning Inventory

The value of inventory at the start of an accounting period.

Ending Inventory

The value of inventory remaining at the end of an accounting period.

Accumulated Depreciation

The total depreciation expense allocated to an asset over time.

Total Assets

The sum of all assets owned by a company.

Trial Balance

A list of all accounts and their balances at a specific point in time.

Permanent Accounts

Accounts that are not closed at the end of an accounting period.

Temporary Accounts

Accounts that are closed at the end of an accounting period.

Income Summary

An account used to summarize revenues and expenses for closing entries.

Accounts Receivable

The amount of money owed to the business by customers.

FASB

Financial Accounting Standards Board; sets accounting standards in the US.

IFRS

International Financial Reporting Standards; a set of accounting standards developed by the IASB.

GAAP

Generally Accepted Accounting Principles; standard framework of guidelines for financial accounting.

Classification by Function

Organizing income statement expense items according to their role: administration, selling, etc.