1
Q
service entities perform
A
services for a fee
2
Q
service entities use
A
basic income statement
3
Q
merchandising entities earn a profit from
A
buying and selling goods
4
Q
income statement of service entities
A
service revenue - expenses = profit
5
Q
income statement of merchandising business
A
net sales - cost of sales = gross profit +/- expenses or additional income = profit
6
Q
arise from the sale of goods
A
net sales
7
Q
represents the cost of inventory the entity has sold to customers
A
cost of sales
8
Q
cost of sales is also known as
A
cost of goods sold
9
Q
difference between net sales and cost of sales
A
gross profit
10
Q
it is added to the gross profit
A
operating income
11
Q
it is deducted from the gross income
A
operating expenses
12
Q
after operating income is added and operating expenses are deducted
A
operating income
13
Q
these are considered to arrive at profit before tax
A
investment revenues, other gains and losses, and finance costs/interest expense
14
Q
it is deducted ot have profit from continuing operationgs
A
income tax expense
15
Q
it is taken into acount to get profit for the period
A
profit from discontinued operations
16
Q
flow of income statement for merchandising
A
net sales - cost of sales = gross profit - operating expenses = operating profit - finance costs = profit
17
Q
purchases inventory, sells the inventory, and uses the cash to purchase more inventory
A
merchandise entity
18
Q
the cycle is from cash to inventory and back to cash
A
cash sales
19
Q
the cycle is from cash to inventory to accounts receivable and back to cash
A
sales on account
20
Q
in any industry, the manager strives to
A
shorten the cycle
21
Q
the faster the sale of inventory and collection of cash,
A
the higher the profits
22
Q
various business forms and documents that help identify the transactions that should be recorded in the books
A
source documents
23
Q
contain vital information about the nature and amount of the transactions
A
source documents
24
Q
prepared by the seller of goods and sent to the buyer
A
sales invoice
25
this document contains the name and address of the buyer, date of sale, and information--quantity, description, and price-- about the goods sold
sales invoice
26
it also specifies the amount of sales, and the transporation and payment terms
sales invoice
27
a document issued by the carrier--a trucking, shipping, or airline--that specifies contractual conditions and terms of delivery such as freight terms, time, place, and the person named to receive the goods
bill of lading
28
formal notice to the debtor detailing the accounts already due
statement of account
29
evidences the receipt of cash by the seller or the authorized representative
official receipt
30
it notes the invoices paid and other details of payment
official receipt
31
printed forms with depositors name, account name,and space for details of the deposit
deposit slip
32
indicates that cahs and checks with the suppied details were actually deposited or credited to the account holder
validated deposit slip
33
written order to a bank by a depositor to pay the amount specified in the check from his checking account to the person named in the check
check
34
the entity issuing hte check
payor
35
the receiver of the check
payee
36
written request to the purchaser of an entity from an employee or user department of the same entity that goods be purchased
purchase requisition
37
an authorization made by the buyer to the seller to deliver the merchandise as detailed in the form
purchase order
38
document containing information about goods received from a vendor
receiving report
39
it formally records the quantities and descriptions of the goods delivered
receiving report
40
form used by the seller to notify the buyer that his account is being decreased due to errors or other factors requiring adjustments
credit memorandum
41
steps in a purchase transaction
1. user department files purchase requisition form and sends to purchasing department
2. purchasing department prepares purchase order addressed to the selected vendor
3. seller forwards an invoice to the purchaser upon shipment of the merchandise
4. upon receiving shipment, purchasers receiving department sees if purchase order has been complied with and prepares receiving report
5. before approving invoice for payment, A/P department compares copies with purchase requisition, P.O., receiving report,and invoice to ensure they agree
42
merchandise may be purchased or sold either on
credit terms or for cash on delivery
43
a period of time allowed for payment when goods are sold on account
credit period
44
T/F: the length of the credit period varies across industries and may even vary within an entity, depending on the product
t
45
the credit periods determines when
payment is to be expected (from the invoice date)
46
the credit period is usually described as
net credit period or net period
47
credit period of 30 days is noted as
n/30
48
if invoice is due 10 days after the end of the month, it may be marked
n/10, eom
49
EOM stands for
end of the month
50
discounts for prompt payment
cash discounts
51
cash discounts from the buyers viewpoint
purchase discounts
52
cash discounts rfm the sellers pov
sales discounts
53
this practice improves the sellers cash position by reducing the amount of accounts receivable
cash discounts
54
period covered by the discount
discount period
55
encourages buyers to purchase products because of markdowns from the list price
trade discounts
56
FOB stands for
free on board
57
FOB shipping point
buyer shoulders shipping costs
58
what is the shipping point
the sellers place of business
59
FOB destination
seller bears shipping costs
60
what is destination
the place where buyer receives goods
61
freight prepaid
the seller pays transportationcosts before shipping the goods sold
62
freight collect
the freight entity collects from the buyer
63
goods typically sold shipped freight collect when the terms are
FOB shipping point
64
goods are typically shipped freight prepaid when the terms are
FOB destination
65
who shoulders: destinatin, prepaid
seller
66
who shoulders: point collect
buyer
67
who shoulders: destination, collect
seller
68
who shoulders: point, prepaid
buyer
69
who pays shipper: destination, prepaid
seller
70
who pays shipper: point, collect
buyer
71
who pays shipper: destination, collect
buyer
72
who pays shipper: point, prepaid
seller
73
shipping costs borne by the buyer using the periodic inventory system are debited to
transportation in
74
shipping costs borne by the seller are debited to
transportation out
75
transportation out is also known as
delivery expense
76
an operating expense in the income statemnet
delivery expense
77
key factor in determining cost of sales
merchandise inventory
78
represents goods available for sale
merchandise inventory
79
two systems to determine the quantity and cost of these goods
perpetual and periodic
80
two systems that record events related to merchandise inventory
perpetual and periodic
81
an alternative to the periodic inventory system
perpetual
82
in this system, hte inventory account is continuously updated
perpetual
83
perpetualy updating the inventory account requires that
at the time of purchase, merchandise acquisitions be recorded as debits to the inventory account
at the time of sale, cost of sales is determined and recorded by a debit to the cost of sales account
84
merchandising entities are now using the perpetual inventory system with
point of sale equipment
85
when an entity uses the perpetual inventory system, the ending inventory should
reconcile with the actual physical count at the end of the period assuming no theft, spoilage, or error has occured
86
the count of inventory when using the perpetual inventory system provides an
independent check on the amount of inventory that should be reported at the end of the period
87
system primarily used by businesses that sell relatively inexpensive goods and that are not yet computerized scanning systems to analyze goods sold
periodic system
88
a characteristic of periodic system
no entries are made to the inventory count as the merchandise is bought and sold
89
in the periodic system, when goods are purchased, these accounts are used to accumulate information on the net cost of purchses
purchases, purchase discounts, purchase returns and allowancse, and transportation in
90
in the periodic system, only at the end of the period when the inventory will be counted will
entries be made to the merchandise account
91
under accrual accounting, revenues from the sale of merchandise are considered to be earned in the
accounting period in which the title of goods passes (usually at the point of delivery) from the seller to the buyer
92
gross sales consist of
total sales of cash and on credit during the period
93
sales returns and allowances AND sales discounts are considered as
contra-income accounts
94
when a good is returned, the seller issues the customer
a credit memorandum
95
largest single expense of the merchandising business
cost of sales/cost of goods sold
96
it is the cost of inventory that the entity has sold to customers
cost of sales/COGS
97
merchandise inventory at the beginning of the period
beginning inventory
98
merchandise inventory at the end of the period
ending inventory
99
beginning inventory is used in calculating the
cost of sales in the income statement
100
ending inventory is shown in the
income statement
101
ending inventory of the current period will effectively become the
beginning inventory of the next period
102
how to calculate net cost of purchases
gross purchases - discounts and returns&allowances = net purchases + transportation cost
103
purchases account is a
temporary account
104
recording merchandise purchases at invoice price is known as the
gross price method of recording purchases
105
purchase discounts and purchase returns and allowances are
contra account
106
three major parts of the merchandising income statement
net sales, cost of sales, operating expenses
107
types of operating expenses
selling and administative
108
selling expenses are also known as
distribution costs
109
those expenses related directly to the entity's effort to generate sales
selling expenses/distribution costs
110
selling expenses include
sales salaries and commissions, advertising, store display, store supplies, depreciation of STORE property and equipment, and transportation out
111
those expenses related to the general administration of the business
administrative expenses
112
administrative expenses include
office salaries, office supplies used, depreciation of office property and equipment, business taxes, professional services, uncollectible accounts exense, and other general office expenses
113
those expenses not related to the central operations of the business
other operating expenses
114
other operating expenses include
expenses and losses from peripheral or incidental transaction (ex. loss on sale of investments or loss on sale of property and equipment)
115
with no perpetual record of the cost of sales during the peirod, the only way toobtain the cost of the ending inventory is to make a
physical count
116
in the periodic inventory system, purchase of merchandise are accumulated in the
purchases account
117
ending inventory is deducted from the
goods available for sale
118
steps for physical count
1. all merchandise owned by the entity is counted
2. the quantity counted is multiplied by the cost per unit for each inventory item
3. the costs of variousitems rae added to determne total cost of inventory (ending inventory)
119
an understatement of ending inventory will cause an
overstatement of cost of sales, understatement of gross profit and profit; understatement of current assets and owner's equity
120
understatement of the ending inventory of the current period causes
understatement of the beginning inventory of the next period; understatement of current assets and owner's equity
121
an error in valuing ending inventory will translate into
one inaccurate balance sheet and two incorrect income statements
FAR
flashcards
Decks in class (13)
# Cards
-
CHAPTER 7-8121
-
CHAPTER 7: QUESTIONS84
-
CHAPTER 7: Transportation In4
-
CHAPTER 7: Transportation Out4
-
CHAPTER 8: COMPLETING THE CYCLE (MERCHANDISING)80
-
CHAPTER 9: SPECIAL JOURNALS54
-
CHAPTER 1-6131
-
CHAPTER 4: ADJUSTMENTS12
-
CHAPTER 12: Partnership Considerations and Formation126
-
CHAPTER 12: Partnerships Considerations and Formation (QUESTIONS)46
-
CHAPTER 13: PARTNERSHIP OPERATIONS AND FINANCIAL REPORTING89
-
CHAPTER 13: PARTNERSHIP OPERATIONS AND FINANCIAL REPORTING (QUESTIONS)22
-
CHAPTER 14: CORPORATION79
