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Accounting chap 5 key terms
Terms in this set (30)
A reduction in invoice price offered to customers to encourage prompt payment of invoices
cost of goods sold
The total cost attributed to units of inventory actually sold during a period
A seller-prepared document evidencing an approved return of merchandise for credit against an account
A purchaser-prepared document evidencing a return of merchandise to a seller
Free on Board destination; meaning the transfer of ownership of inventory will occur when the goods reach their destination and the seller will incur the freight charges
F.O.B. shipping point
Free on Board shipping point; meaning the transfer of ownership of inventory will occur when the goods are shipped and the purchaser will incur the freight charges
goods available for sale
A calculated amount corresponding to the beginning inventory plus net purchases; represents the total pool of inventory available during a period from which sales can occur
A method of recording purchases of inventory at invoice price
A calculated amount corresponding to net sales minus cost of goods sold
Goods held for resale to others
List price less any trade discounts
An establish price determined by reference to a catalog or general price list; before any discounts
multiple-step income statement
A complex income statement with sections that segregate cost of goods sold calculations and other components of income and expense; enables enhanced evaluations of data
A method of recording purchases of inventory at invoice price less available cash discounts
General expense category for selling and administrative costs
periodic inventory system
An inventory system that utilizes a Purchases account and does not update inventory with each sale; inventory is updated by physical count at the end of accounting periods
perpetual inventory system
A "real-time" inventory system that updates inventory records with each purchase and sale
A cash discount available on purchases of merchandise on account; encourages prompt payment
A cash discount offered to customers to encourage prompt payment of invoices
single-step income statement
A simple income statement with a section for all revenues and another for all expenses; there is no direct association between specific revenue and expense components
A reduction from list price that is not entered in the accounting records; customarily offered in "setting" the invoice amount
an account that is offset against revenue in the income statement. Examples include Sales Discounts and Sales Returns and Allowances.
Purchases discounts account
A contra purchases account that records discounts received for prompt payment of merchandise. Unique to Gross method of recording purchases (in contrast to net method
Multi-step income statement
Format that contains subtotals to highlight significant relationships. In addition to net income, it reports gross profit and operating income.
Expenses of promoting sales, such as displaying and advertising merchandise, making sales, and delivering goods to customers.
expenses incurred in the administration or general operations of the business.
The Sales account and Purchases account should include
both cash and credit sales and cash and credit purchases of merchandise.
A special temporary expense account used to track merchandise purchased for resale by the business. It is included in the Cost of Goods Sold account.
Purchase returns and allowances account
A contra-purchases account used in a periodic inventory system when a refund is received from a supplier or a reduction is given in the balance owed to a supplier.
Freight in account
Freight cost incurred by a purchaser, and is added to purchases when calculating net purchases.
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