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Merchandise
Products or goods that a company buys to resell.
Goods Available for Sale Formula
Beginning Inventory + Net Purchases
Cost of Goods Sold Formula
Goods available for sale - ending inventory
Net Income Formula
Gross Profit - Expenses
Merchandiser
A business that earns net income by buying and selling merchandise.
Wholesaler
Buys products from manufacturers and sells them to retailers.
Retailer
Buys products from manufacturers or wholesalers and sells them to customers.
Sales
Revenue from selling merchandise.
Cost of Goods Sold/Cost of Sales
Expense of buying and preparing merchandise.
Merchandiser Formula
Net Sales – Cost of Goods Sold = Gross Profit – Expenses = Net income.
Gross Profit/Gross Margin Formula
Net sales minus Cost of Goods Sold.
Merchandise inventory
Products that a company owns and intends to sell.
Inventory Cost
Cost to buy the goods, ship them to the store, and prepare them for sale.
Operating Cycle for Merchandiser
Cash purchases of merchandise to inventory for sale to credit sales to accounts receivables to receipt of cash.
Perpetual Inventory System
Records cost of goods sold at the time of each sale.
Periodic inventory system
Records cost of goods sold at the end of the period.
Credit Period
Amount of time allowed before full payment is due.
Cash Discount
Granted by sellers to encourage buyers to pay earlier.
Purchases Discount
How a buyer views a cash discount.
Sales Discount
How a seller views a cash discount.
Discount Period
Period of time the cash discount is offered.
Net Sales Formula
Sales minus sales discounts, returns, allowances
Gross Method
Records the credit purchase at its gross (full) invoice amount until it’s paid.
Purchase Returns
Merchandise a buyer purchases but then returns.
Purchase Allowances
Seller granting a price reduction to a buyer of defective or unacceptable merchandise.
FOB destination
Ownership of goods transfers to the buyer when the goods arrive at the buyer’s place of business.
Transportation costs of a buyer are part
Part of the cost of merchandise inventory.
Temporary accounts unique to merchandisers
Sales, Sales Discounts, Sales Returns and Allowances, and Cost of Goods Sold.
Closing Process for Merchandisers
Step-wise process to close accounts including debiting sales and crediting various accounts.
Multiple-Step Income Statement
Details net sales and expenses with subtotals for various items.
Gross profit formula
Net sales minus Cost of Goods Sold.
Income from Operations formula
Gross profit minus operating expenses.
Net Income
Income from operations plus or minus nonoperating items.
Selling expenses
Costs to market and distribute products, such as advertising and delivery.
General and administrative expenses
Costs to administer a company’s overall operations.
Nonoperating activities
Other expenses, revenues, losses, and gains unrelated to a company’s operations.
Other revenues and gains
Include interest revenue, dividend revenue, rent revenue, and gains from asset disposals.
Other expenses and losses
Commonly include interest expense, losses from asset disposals, and casualty losses.
Classified Balance Sheet
Reports merchandise inventory as a current asset.
Acid-test ratio/quick ratio
An indicator that a company has enough current assets to cover current liabilities.
Gross Margin Ratio
Calculated by dividing Net sales minus Cost of Goods Sold by net sales.
FOB shipping point
Goods are included in the buyer's inventory once they are shipped
Consignor
Owns the consigned goods and reports them in its inventory.
Consignee
Sells goods for the owner and never reports consigned goods in inventory.
Damaged, obsolete, and deteriorated goods
Are not reported in inventory if they cannot be sold.
Net Realizable Value Formula
Sales price minus cost of making the sale.
FIFO
Assumes costs flow in the order incurred; earliest units sold first.
LIFO
Assumes costs flow in the reverse order incurred; most recent purchases sold first.
Weighted Average
Assumes costs flow at an average of the costs available.
Specific Identification
Each item in inventory can be matched with a specific purchase and invoice.
Inventory turnover
Tells how many times a company sells its inventory in a period.
Days’ sales in inventory
Ratio showing how much inventory is available in terms of the number of days’ sales.
Inventory Turnover Formula
Cost of goods sold divided by (beginning inventory+ending inventory)/2.
Days’ Sales in Inventory Formula
(Ending Inventory / Cost of Goods Sold) x 365.
Note 
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