CONT3011 Examen 3

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.