CHAPTER 5

Merchandising Companies

Companies that buy and sell goods.

Sales Revenue

The primary source of revenue for merchandising operations.

Cost of Goods Sold

The total cost of merchandise sold during a period.

Gross Profit

Sales Revenue minus Cost of Goods Sold.

Operating Cycle

The time period between the acquisition of inventory and the collection of cash from receivables.

Perpetual Inventory System

An inventory system that maintains detailed records of the cost of each inventory purchase and sale.

Periodic Inventory System

An inventory system where the cost of goods sold is determined by a physical count at the end of the accounting period.

Purchase Returns and Allowances

Reductions in the cost of purchases due to defective goods or other reasons.

Sales Returns and Allowances

Contra-revenue accounts to Sales Revenue for returned goods.

Single-Step Income Statement

An income statement format that subtracts total expenses from total revenues.

Multiple-Step Income Statement

An income statement format that shows several steps in determining net income.

Operating Expenses

Expenses incurred during the normal operations of a business.

Cash Discounts

Discounts allowed to buyers for prompt payment.