Financial accounting (chapter 5)

Merchandiser

A business that sells merchandise or goods, to customers.

Merchandise inventory

the merchandise that a business sells to customers

Wholesaler

A type of merchandiser who buys goods from manufactures and then sells them to retailers

Retailer

A type of merchandiser who buys merchandise either from a manufacture or a wholesaler and then sales those goods to consumers 

Vendor

the individual or business from who a company purchases goods.

Cost of Goods Sold (GOGS)

the cost of the merchandise inventory that the business has sold to customers.

Gross profit

Excess of Net Sales Revenue over Cost of Goods Sold.

Operating expenses 

Expenses, other than Cost of Goods Sold, that are incurred in the entity’s major ongoing operations.

Periodic Inventory System

An inventory system that requires businesses to obtain a physical count of inventory to determine quantities on hand.

Perpetual Inventory System

An inventory system that keeps a running computerized record of merchandise inventory.

Invoice

A seller’s request for payment from the purchaser

Purchase return 

A situation in which sellers allow purchasers to return merchandise that is defective, damaged, or otherwise unsuitable.

Purchase allowances

An amount granted to the purchaser as an incentive to keep goods that are not “as ordered”

Purchase discount

A discount that businesses offer to purchasers as an incentive for early payment

Credit terms

The payment terms of purchase or sale as stated on the invoice.

FOB shipping point 

Situation in which the buyer takes ownership (title) to the goods when the goods leave the seller’s place of business (shipping point) and the buyer typically pays the freight 

FOB destination

Situation in which the buyer takes ownership (title) to the goods at the delivery destination point and the seller typically pays the freight.F

Freight In

the transportation cost to ship goods to the purchaser’s warehouse: therefore, it is freight on purchased goods.

Freight Out

The transportation cost to ship goods out of the sellers warehouse: therefore, it is freight on goods sold to a customer

Sales revenue 

the amount that a merchandiser earns from selling its inventory S

Sales discount

Reduction in the amount of revenue earned on sales for early payment

Sales Returns and allowances

Decreases in the seller’s receivable from a customers return of merchandise or from granting the customer an allowance from the amount owed to the seller

Sales return

A reduction in the amount owed by a customer that does not involve the return of merchandise inventory

Inventory shrinkage

The loss of inventory that occurs because of theft and damage

Net sales Revenue

The amount a company has earned on sales after returns, allowances, and discounts have been taken out. Sales revenue less Sales Revenue and Allowances and Sales discounts.

Single-step income statement

Income statement format that groups all revenues together and then lists and deducts all expenses together without calculating any subtotals.

Multi-step income statement 

Income statement format that contains subtotals to highlight significant relationships in addition to net income, it reports gross profit and operating income.S

Selling expenses

operating expenses related to marketing and selling the company’s goods and services

Administrative Expenses

operating expenses incurred that are not related to marketing the company’s goods and services

Operating income

Measures the results of the entity’s major ongoing activities. (Gross profit minus operating expenses).

Other income and expenses

Revenues or expenses that are outside the normal, day-to-day operations of the business, such as a gain or loss on the sale of plant assets or interest expense.

Income tax expense

Expense incurred by a corporation related to federal and state income taxes.

Gross profit percentage

measures the profitability of each sales dollar above the cost of goods sold . (Gross profit / Net sales revenue)