Accounting for Merchandise Transactions

Flashcards created to review key accounting terms and concepts related to merchandise transactions.

Keep it simple (KIS)

A principle suggesting that individuals should keep accounting and financial reporting straightforward.

Inventory

Goods purchased by a company for resale, which must be tracked and accounted for.

Cost of Goods Sold (COGS)

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

Freight-in

The transportation costs incurred to bring inventory to a business.

Freight-out

The costs associated with delivering sold goods to customers, categorized as a selling expense.

Accounts Receivable

An asset account that represents money owed to the company by its customers.

Perpetual Inventory System

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

Periodic Inventory System

An inventory system that updates inventory records at specific intervals, typically at the end of an accounting period.

Gross Profit

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

Accumulated Depreciation

A contra asset account representing the total depreciation expense charged against an asset over time.

Amortization Expense

The expense related to gradually reducing an intangible asset's value over its useful life.

Returns and Allowances

Contra-revenue accounts used to track returned goods and discounts given to customers.

Net Realizable Value

The estimated selling price of inventory minus the costs necessary to make the sale.

Loss on Sale of Equipment

A financial loss incurred when selling an asset for less than its book value.

Stock Keeping Unit (SKU)

A unique identifier for each distinct product and service that can be purchased.

Inventory Turnover Ratio

A ratio indicating how efficiently inventory is being managed by measuring the number of times inventory is sold during a period.

Depreciation

The systematic reduction of the recorded cost of a fixed asset.