Financial Accounting - Recording Business Transactions and Merchandising Operations

These flashcards cover fundamental concepts of financial accounting and merchandising operations based on the provided notes.

What are the three categories of the accounting equation?

Assets, Liabilities, and Equity.

What is an account in accounting?

A detailed record of all increases and decreases that have occurred in an account during a specified period.

What is the major difference between a wholesaler and a retailer?

A wholesaler buys goods from a manufacturer and sells them to retailers, while a retailer sells merchandise to consumers.

What is the journalizing process in accounting?

The process includes identifying accounts, deciding if they increase or decrease, recording the transaction, posting to the ledger, and ensuring the accounting equation is balanced.

How is common stock categorized in terms of equity?

Common stock represents the net contributions of stockholders in the business and increases equity.

What does 'debit' mean in accounting?

An entry made on the left side of an account that signifies an increase in assets or expenses, or a decrease in liabilities or equity.

What are the two types of merchandise inventory systems?

Perpetual inventory system and periodic inventory system.

What is 'Cost of Goods Sold' (COGS)?

The cost of merchandise sold to customers by a business.

What happens to equity when dividends are paid?

Dividends decrease equity.

What types of accounts increase with a credit?

Liabilities, Revenues, and Common Stock.

What is the impact of a purchase allowance?

Amounts granted to purchasers as an incentive to keep goods that are not as ordered, resulting in a reduction of the cost of inventory.

What is meant by FOB shipping point?

The buyer takes ownership of the goods after they leave the seller's premises and usually pays the freight.

How does Smart Touch Learning account for service revenue earned?

By recording it as revenue when services are provided to clients.

What is the purpose of the closing process in accounting?

To zero out temporary accounts and transfer the balances to Retained Earnings.

In a perpetual inventory system, what two entries are made for sales?

One entry records Sales Revenue and Cash or Accounts Receivable; the other records Cost of Goods Sold and Merchandise Inventory.

What should be reported under current assets for a merchandising company?

Cash, Accounts Receivable, Merchandise Inventory, and other assets expected to be converted into cash or consumed within one year.