ACIS 2115 ch4-8

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Last updated 7:20 AM on 6/14/26
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15 Terms

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Service company vs. merchandising company

A service company sells services.

A merchandising company sells products.

The big difference is that merchandisers have inventory and cost of goods sold.

<p>A <strong>service company</strong> sells services.</p><p>A <strong>merchandising company</strong> sells products.</p><p>The big difference is that merchandisers have <strong>inventory</strong> and <strong>cost of goods sold</strong>.</p>
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Merchandising company income statement

Net Sales - Cost of Goods Sold = Gross Profit

Gross Profit - Expenses = Net Income

<p>Net Sales - Cost of Goods Sold = <strong>Gross Profit</strong></p><p><strong>Gross Profit </strong>- Expenses = <strong>Net Income</strong></p>
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Net sales

Sales - Sales Discounts - Sales Returns and Allowances = Net Sales

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Operating cycle for a merchandiser

Cash → Inventory → Sales → Accounts Receivable → Cash

  • Business uses cash to buy inventory.

  • Business sells the inventory.

  • If sold on credit, the customer owes money.

  • Customer pays.

  • Business gets cash back.

<p><strong>Cash → Inventory → Sales → Accounts Receivable → Cash</strong></p><ul><li><p>Business uses cash to buy inventory.</p></li><li><p>Business sells the inventory.</p></li><li><p>If sold on credit, the customer owes money.</p></li><li><p>Customer pays.</p></li><li><p>Business gets cash back.</p></li></ul><p></p>
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Perpetual inventory system

This system updates inventory every time inventory is bought or sold.

It records:

  • Each purchase

  • Each sale

  • Cost of goods sold at the time of sale

  • Inventory balance after each transaction

Most companies use this now because technology makes it easier.

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Periodic inventory system

This system updates inventory only at the end of the period.

Instead of tracking every sale immediately, the company counts inventory at the end.

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Buying merchandise

When a business buys goods for resale, it records the purchase in Merchandise Inventory.

<p>When a business buys goods for resale, it records the purchase in <strong>Merchandise Inventory</strong>.</p>
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Credit terms

explain when payment is due and whether there is a discount.

Example:

2/10, n/30

This means:

  • 2 = 2% discount

  • 10 = discount available if paid within 10 days

  • n/30 = full amount due within 30 days

The buyer gets a 2% discount if they pay within 10 days. Otherwise, the full amount is due in 30 days.

<p>explain when payment is due and whether there is a discount.</p><p>Example:</p><p><strong>2/10, n/30</strong></p><p>This means:</p><ul><li><p><strong>2</strong> = 2% discount</p></li><li><p><strong>10</strong> = discount available if paid within 10 days</p></li><li><p><strong>n/30</strong> = full amount due within 30 days</p></li></ul><p>The buyer gets a <strong>2% discount</strong> if they pay within <strong>10 days</strong>. Otherwise, the full amount is due in <strong>30 days</strong>.</p>
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Purchase return

The buyer sends merchandise back. These happen when the buyer is unhappy with the merchandise.

= we bought it and returned it.

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Purchase allowance

The buyer keeps the merchandise but gets a price reduction because of defective or unacceptable merchandise. These happen when the buyer is unhappy with the merchandise.

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Transportation costs and FOB terms

FOB(Free on Board) tells who owns the goods during shipping and who pays shipping.

<p><strong>FOB(Free on Board) </strong>tells who owns the goods during shipping and who pays shipping.</p>
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Net cost of purchases

Invoice cost of purchases
- Purchase discounts
- Purchase returns and allowances
+ Transportation-in(Transportation cost of a buyer)
= Net cost of purchases

<p><strong>Invoice cost of purchases</strong><br><strong>- Purchase discounts</strong><br><strong>- Purchase returns and allowances</strong><br><strong>+ Transportation-in(Transportation cost of a buyer)</strong><br><strong>= Net cost of purchases</strong></p>
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Sales return

The customer returns the merchandise. These happen when customers are unhappy. contra revenue account.

Sales return = we sold it and the customer returned it.

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Sales allowance

The customer keeps the merchandise but gets a price reduction. These happen when customers are unhappy. contra revenue account.

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