ch5 keywords

5. Merchandising Operations: Merchandising Operations

Comprehensive income

The total change in the shareholders' equity of the entity from non-owner sources. Includes net income as well as other comprehensive income.

Contra expense account

An account that is offset against (reduces) an expense account on the statement of income. Examples include Purchase Returns and Allowances and Purchase Discounts.

Contra revenue account

An account that is offset against (reduces) a revenue account on the statement of income. Examples include sales returns and allowances and sales discounts.

Cost of goods available for sale

The sum of beginning inventory and the cost of goods purchased.

Cost of goods purchased

The sum of net purchases and freight in.

Cost of goods sold

The total cost of inventory sold during the period. In a perpetual inventory system, it is calculated and recorded for each sale. In a periodic inventory system, it is calculated at the end of the accounting period by deducting ending inventory from the cost of goods available for sale.

Estimated inventory returns

The estimated cost of inventory that is expected to be returned by customers.

FOB (free on board) destination

Freight terms indicating that the seller will pay for the shipping costs of the goods and is responsible for the goods until they arrive at their destination (normally the buyer's place of business).

FOB (free on board) shipping point

Freight terms indicating that the seller is responsible for the goods only until they reach their shipping point (normally the seller's place of business). The buyer will pay for the shipping costs of the goods from the shipping point until they arrive at their destination and is responsible for them once they have left the shipping point.

Function (classifying expenses by)

A method of organizing expenses on the income statement by way of the activity (business function) for which they were incurred (such as cost of goods sold, administrative, and selling).

Gross profit

Sales revenue less cost of goods sold.

Gross profit margin

Gross profit expressed as a percentage of sales. It is calculated by dividing gross profit by sales.

Income from operations

The results of a company's normal operating activities. It is calculated as gross profit less operating expenses.

Multiple-step statement of income

A statement of income that shows several steps to determine net income or loss by separately reporting sales, gross profit, income from operations, income before income tax, and net income.

Nature (classifying expenses by)

A method of organizing expenses on the income statement by way of their natural classification (such as salaries, transportation, depreciation, and advertising).

Net purchases

Purchases less purchase returns and allowances and purchase discounts.

Operating expenses

Expenses incurred in the process of earning sales revenue. They are deducted from gross profit to arrive at income from operations.

Other comprehensive income

Gains and losses that affect shareholders' equity but are not shown in net income or loss. They relate to complex transactions such as certain types of gains and losses on investments.

Periodic inventory system

An inventory system in which detailed records are not maintained and the ending inventory and cost of goods sold are determined only at the end of the accounting period after a physical inventory count has been completed.

Perpetual inventory system

An inventory system in which the quantity and cost of each inventory item is maintained. The records continuously show the inventory that should be on hand and the cost of the items sold.

Profit margin

Net income expressed as a percentage of sales. It is calculated by dividing net income by sales.

Purchase allowances

An allowance granted by the seller on the selling price when the buyer is dissatisfied with the merchandise but agrees to keep it, rather than return it.

Purchase discount

A price reduction, based on the invoice price less any returns and allowances, to encourage customers to make an early payment of a credit purchase.

Purchase returns

Cash refunds or credits granted by the seller for goods returned by the buyer.

Refund Liability

Account used to track expected sales returns and allowances.

Sales

Revenue from the sale of inventory.

Sales discounts

A price reduction that is based on the invoice price less any returns and allowances and is given by a seller for early payment of a credit sale.

Sales returns and allowances

Cash refunds or credits provided by the seller to the buyer when they return goods or agree to keep goods that they are dissatisfied with.

Shrinkage

Loss of inventory due to theft or spoilage.

Single-step statement of income

A statement of income that shows only one step (revenues less expenses) in determining income before income tax, after which income tax expense is deducted to determine net income (loss).

Statement of comprehensive income

A financial statement that presents net income (loss) and other comprehensive income (loss) for a specific period of time. Other comprehensive income items, such as realized and unrealized gains and losses from investments accounted for using the fair value through OCI model, are not reported on the statement of income because they are not considered critical to the evaluation of management's performance, but are included in comprehensive income.