PARCOR, Chapter 2

Stakeholders

people or groups who have an interest in or are affected by a business.

Poor Documentation

communication or record-keeping that is unclear, inaccurate, incomplete, outdated, or poorly organized.

Proper Documentation

maintaining clear, accurate, complete, organized, and accessible records.

Source Document

document that provides evidence that a transaction occurred.

Financial Impact

an effect of an event or transaction on the accounting equation or financial position of a business.

Transaction Analysis

process of determining which accounts are affected and whether they increase or decrease because of a transaction.

Merchandising Business

business that buys finished goods for resale to customers at a profit.

Merchandise

goods or commodities bought or manufactured for the purpose of selling them at a profit.

Trading Business

business engaged in buying and selling merchandise.

Wholesale Trading

selling merchandise in large quantities, usually to other businesses.

Retail Trading

selling merchandise directly to consumers, usually in smaller quantities.

Buyer

party that purchases merchandise.

Seller

party that sells merchandise.

Customer

person or entity that buys goods or services from a business.

Initial Investment

the owner's first contribution of cash or non-cash assets to start the business.

Additional Investment

additional cash or non-cash assets contributed by the owner after the business has started.\

Acquisition of an Existing Business

purchasing an already operating business, including its assets and possibly assuming its liabilities.

Inventory System

method used to track and account for merchandise inventory.

Periodic Inventory System

inventory system where inventory records are not continuously updated; inventory and cost of goods sold are determined through a physical count at the end of the period.

Perpetual Inventory System

inventory system where inventory and cost of goods sold are continuously updated after every purchase and sale.

Physical Inventory Count

actual counting, weighing, or measuring of inventory on hand.

Stock Card

record that continuously tracks inventory received, issued/sold, and remaining balance.

Inventory Shortage

difference where the actual inventory is less than the recorded inventory.

Inventory Loss

inventory that is missing, lost, stolen, or spoiled.

Cost of Goods Sold (COGS/CGS)

cost of merchandise that has been sold.

Merchandise Inventory

merchandise still unsold and available for sale.

Beginning Inventory

merchandise inventory on hand at the beginning of the accounting period.

Ending Inventory

merchandise inventory remaining unsold at the end of the accounting period.

Net Cost of Purchases

gross purchases minus purchase returns, allowances, and purchase discounts.

Periodic — Inventory Tracking

inventory is not updated after every transaction.

Perpetual — Inventory Tracking

inventory is updated continuously after every purchase and sale.

Periodic — COGS

determined at the end of the accounting period after physical counting.

Perpetual — COGS

determined every time merchandise is sold.

Periodic — Stock Card

generally not maintained.

Perpetual — Stock Card

generally maintained continuously.

Periodic — Purchases Account

used to record merchandise purchases.

Physical Count

actual counting of inventory to determine the quantity and cost of merchandise on hand.

Inventory Sheet

list showing the quantity and cost of each type of inventory after a physical count.

Inventory Tag

numbered tag used to identify and account for inventory items during physical counting.

Non-Merchandise Asset

asset purchased for use in business operations rather than resale.

Merchandise Asset

asset purchased with the intention of reselling it to customers.

Purchases

temporary account used under the periodic inventory system to record the cost of merchandise bought.

Mixed Account

account containing both asset and expense elements.

Credit Terms

agreed period within which the buyer must pay the seller, including any available cash discount.

Cash Discount

reduction in the amount owed when the buyer pays within the specified discount period.

Purchase Discount

discount received by the buyer for paying the seller promptly.

Sales Discount

discount given by the seller to the buyer for prompt payment.

Purchase Return

merchandise returned by the buyer to the seller because of defects, damage, wrong specifications, etc.

Purchase Allowance

reduction in the purchase price without returning the merchandise.

Purchase Returns and Allowances

contra-purchases account used for merchandise returned or allowances received.

Credit Memorandum

document issued by the seller showing that the customer's liability has been reduced.

Debit Memorandum

document showing that the customer's account has been debited, often because of an error or additional amount owed.

Discount

deduction from the cost or selling price of merchandise.

Purchase Discount

cash discount received by the buyer for prompt payment; has a normal credit balance.

Sales Discount

cash discount given by the seller for prompt payment; has a normal debit balance.

Freight-In

transportation cost paid by the buyer to bring purchased merchandise to the business; has a normal debit balance.

Freight-Out

transportation/delivery expense paid by the seller to deliver merchandise to the customer.

Transportation-In

another term for Freight-In.

FOB

Free On Board; shipping term identifying who is responsible for freight costs and risk during transportation.

FOB Shipping Point

buyer pays freight and assumes responsibility once goods are shipped.

FOB Destination

seller pays freight and remains responsible until goods reach the buyer.

Freight Prepaid

freight is paid in advance by the seller.

Freight Collect

freight is paid by the buyer.

Freight Bill

document from the transportation company showing transportation charges.

Bill of Lading

shipping document showing the details and terms of transportation of goods.

Adjunct Account

account that is added to another related account; Freight-In is added to the cost of purchases.

Sales

revenue earned by the seller from selling merchandise; has a normal credit balance.

Sales Returns and Allowances

contra-revenue account for merchandise returned by customers or price reductions granted to customers.

Gross Sales

total sales before deducting sales returns, allowances, and discounts.

Net Sales

gross sales minus sales returns, allowances, and sales discounts.

Freight-Out

seller's operating expense for delivering merchandise to customers.

Accounts Receivable

amount owed by customers from credit sales.

Credit Sale

sale where the customer pays at a later date instead of immediately.

Overdue Account

account that remains unpaid after its due date.

Promissory Note

written promise by the maker to pay a specified amount to a payee on demand or at a specified future date.

Notes Receivable

written claim showing that the business has the right to receive payment under a promissory note.

Interest-Bearing Note

note that states a principal amount plus a specified interest rate.

Non-Interest-Bearing Note

note that does not state an interest rate; its face amount already includes the interest.

Maker

person or entity that signs and promises to pay the note.

Payee

person or entity entitled to receive payment.

Principal

original amount stated on the promissory note.

Face Value

amount stated on the face of the note.

Issue Date

date when the promissory note is signed and issued.

Time

period from the issue date to the maturity date used to calculate interest.

Maturity Date

date when the note becomes due and must be paid.

Due Date

another term for maturity date.

Maturity Value

total amount due at maturity; Principal + Interest.

Interest

amount charged for the use of borrowed money or resources.

Simple Interest

interest calculated using Principal × Rate × Time.

Simple Interest Rate

annual interest rate stated on the note.

Legal Rate

interest rate fixed by law when no rate is stated.

Notes Receivable vs. Accounts Receivable

Notes Receivable generally provides a stronger legal claim because it is supported by a written promise to pay.

Value-Added Tax (VAT)

12% tax on consumption imposed on the sale, barter, exchange, or lease of goods, properties, and services, including imports.

VAT-Registered Entity

business registered to collect and remit VAT to the government.

Input Tax

VAT paid on purchases from VAT-registered entities that may be credited against Output Tax, subject to the rules.

Output Tax

VAT collected on sales of goods or services.

VAT Payable

excess of Output Tax over allowable Input Tax; amount payable to the BIR.

Creditable Input Tax

excess of Input Tax over Output Tax; may be carried forward as a tax credit.

VAT-Exempt Sale

sale that is not subject to VAT.

BIR

Bureau of Internal Revenue, the Philippine government agency responsible for administering and enforcing tax laws.