Accounting for Merchandising Operations, Subsidiary Ledgers, and Credit Terms

Vocabulary flashcards covering merchandising transactions, subsidiary ledgers, control accounts, shipping terms, sales returns, and discounts.

Subsidiary Ledger

A ledger containing the detailed individual accounts for specific parties (such as particular customers or vendors) whose balances must total the balance in the corresponding control account.

Control Account

A general ledger account (such as Accounts Payable or Accounts Receivable) that summarizes the total balance of all detailed accounts kept in a subsidiary ledger.

Normal Balance

The standard balance type (debit or credit) assigned to an account category; assets and expenses maintain a normal debit balance, while liabilities, capital, and revenues maintain a normal credit balance.

FOB Destination

A shipping term where control and title transfer to the purchaser at the destination, making the seller responsible for paying shipping costs.

FOB Shipping Point

A shipping term where control and title transfer as soon as goods are loaded onto the carrier, making the purchaser responsible for paying shipping costs.

Cost of Goods Sold

An expense account debited for the inventory's original purchase cost at the time a sale is recognized to match the merchandise given up.

Delivery Expense

An operating selling expense incurred by a seller when paying for freight under FOB destination terms; it is classified as a selling expense rather than cost of goods sold or general and administrative expense.

Sales Return

A transaction in which a purchaser physically sends back purchased merchandise to the merchant, reducing the amount owed by the purchaser and returning the inventory to the seller's records.

Sales Allowance

A reduction in the total amount a customer is required to pay without requiring the customer to physically return the merchandise.

Merchandise Inventory Cost

All reasonable and normal costs incurred to get inventory ready for its intended use, which are decreased by returns, allowances, and purchase discounts.

Contra Revenue

An account (such as Sales Discounts or Sales Returns and Allowances) with a normal debit balance that directly opposes and offsets revenue accounts, which carry normal credit balances.

Sales Discount

A contra revenue account debited by a seller when a customer settles their balance within a specified cash discount period (such as terms granting a $2\%$ deduction).

Credit Terms

Terms extended on credit transactions indicating the cash discount percentage, the discount period in days, and the final due date (e.g., $2/10\text{ net } 60$ or $1/10\text{ net } 45$).

Newton's Third Law of Accounting

A humorous lecture principle stating that for every debit, there must be an equal but opposite credit so that debits and credits always balance.