study guide

a service business provides ____ rather than products to a customer

service

a retail business sells _____ that it purchased from another business

products

a manufacturing business assembles _____ into a _____ and sells them to customers

raw materials, a finished product

revenues for a service business come from _____ to customers

providing a service

revenues for a retail business come from ____ merchandise to customers

sellingt

the operating cycle is the time it takes for ___ spent to turn into ____earned

cash, cash

4 basic financial statements

income statement 

statement of SE 

balance sheet 

cash flow statement 

service business income statement uses ____ as revenue

fees earned

merchandising business income statement uses ___ as revenue

sales

gross profit = 

= sales - COGS 

on a balance sheet, inventory is reported as a ___ asset

current

two main formats for presenting income are ____ step and _____ step income statements

multiple, single

a multiple-step income statement emphasizes _____ and provides ___ details

gross profit, more 

a single-step income statement shows only _____ and ____ totals and does not list ____ profit

total revenues, expense, gross

income from operations =

gross profit - operating expenses

net income =

add/subtract other income and expenses

selling expenses

expenses incurred directly in the selling of merchandise

examples of selling expenses

sales salaries expense

advertising expense

administrative (general) expenses

expenses incurred in the general operation of the business

examples of administrative expenses

rent expense

insurance expense

total operating expenses= 

selling expenses + administrative expenses

two systems for tracking inventory

1. perpetual

2. periodic

perpetual inventory system

records each purchase and sale of inventory in the inventory account 

advantage of perpetual inventory

you always know the amount of inventory on hand

periodic inventory system

records purchases in a purchase account instead of inventory

periodic inventory is ____

physically counted at the end of the year to determine on hand inventory

disadvantage of periodic inventory

you don’t know the amount of inventory on hand except when you count it