Chapter 4 Fact Cards Flashcards

Sales minus Cost of Goods Sold equals Gross Profit (or Gross Margin)

Beginning Inventory plus Purchases equals Goods Available for Sale.

Sales minus Sales Discount minus Sales Returns and Allowances equals Net Sales.

As a purchaser, the only three accounts you will use are Inventory, Accounts Payable, and Cash.

Purchase or Sales Discounts apply to the net balance that is due on the date the payment is made.

Sellers own inventory in transit and are responsible for shipping costs under FOB Destination.

Purchasers own inventory in transit and are responsible for shipping costs under FOB Shipping Point.

The Inventory account capturers all costs necessary to purchase, deliver, and make ready goods for sale. Think of the inventory account as the total financial investment the company has made in its goods for sale.

Cost of Goods Sold is the expense account that captures all inventory expenses.

Cost of Goods Sold is triggered when inventory is sold.

When a purchaser pays for shipping, Inventory is debited.

When a seller pays for shipping, Shipping Expense is debited.

Single-step income statements have one subtotal for revenues and one subtotal for expenses. Multi-step income statements will subtotal revenues and expenses for each division in the company.

Beginning Inventory plus Purchases minus Cost of Goods Sold equals Ending Inventory

Gross Profit minus Other Expenses equals Net Income