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ACCT 2001 Ch 6

Terms in this set (27)

three key differences between balance sheet and income statement of a service company v a merchandising company
(1) merchandisers report Inventories as a current asset, but service companies do not.
(2) service companies earn revenue from services whereas merchandisers earn revenue from sales.
(3) merchandisers report an expense called Cost of Goods Sold, which represents the total cost of all goods sold to customers during the period and service companies do not
inventory
reports total costs of acquiring goods not yet sold
current asset
gross profit
sales revenue - cost of goods sold
CGS equation
CGS=BI+P-EI
periodic inventory system
ending inventory and cost of goods sold determined only at the end of the accounting period based on a physical inventory count
benefit of periodic inventory system
simple to maintain
drawback of periodic inventory system
accurate records of the inventory on hand and the inventory that has been sold are unavailable during the accounting period
perpetual inventory system
a detailed inventory record is maintained by recording each purchase and sale during the accounting period
shrinkage
Loss of inventory from theft, fraud, and error
benefits of perpetual inventory system
1. continuous tracking of transactions allows companies to instantly determine the quantity of products on the shelves and to evaluate the amount of time they have spent there. Using this information, companies can better manage their inventory and save a great deal of money in financing and storage charges.
2. allows managers to estimate shrinkage
costs needed to get inventory in location and condition to sell are reported under
inventory
costs incurred after inventory is ready to be sold are recorded under
selling expense
FOB shipping point
ownership transfers at shipping point,
buyer pays shipping cost
FOB destination
ownership transfers at destination, supplier pays shipping cost
purchase returns and allowances
a reduction in the cost of purchases associated with unsatisfactory goods
how are purchases and allowances recorded
reducing the cost of the inventory and either recording a cash refund or reducing the liability owed to the supplier.
define variables in x/y, n/b credit terms
x = discount percentage offered
y = days in discount period
n = net/full cost
b = max credit period
how to report selling price
sales price recorded as increase in Cash or Acc/R and increase in Sales Revenue
how to report cost
cost incurred to initially buy the merchandise is removed from its Inventory account and reported as an expense called Cost of Goods Sold (CGS)
gross profit is
the difference between sales revenue and cost of goods sold
how to find cost of inventory
purchases
less: purchase discounts
how to find net sales
sales revenue (gross)
less: sales returns and allowances
less: sales discount
gross profit percentage using CGS
Net Sales - CGS/Net sales *100
equipment proportion
equipment price/equipment price + service price
multistep income statement order
Sales Revenue
Less: Sales R&A
Net Sales
CGS
Gross Profit
Operating Expenses
Income from Operations
Income Tax Expense
Net Income
how to determine income from operations on multistep IS
gross profit minus operating expenses
gross profit percentage using gross profit
gross profit/net sales x 100
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