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Chapter 6 Financial accounting
Terms in this set (48)
Comparable store sales
comparison of sales figures at established stores with existing "track records"
a debit balance account that is offset against revenue in the income statement. Ex. Sales discounts, Sales returns, Allowances
consistency (in inventory valuation )
and accounting principle that calls for the use of the same method of inventory pricing from year-to-year with full disclosure of the effects of any change in method.
Cost of Goods Sold
the cost to a merchandising company of the goods it has sold to its customers during a period
net sales revenue minus the cost of goods sold
cost flow assumption
assumption as to the sequence in which units are removed from inventory for the purpose of sale. Not required to paralleled the physical movement of merchandise if units are homogenous
Gross Profit Margin
gross profit expressed as a percentage of net sales
units of merchandise acquired at the same unit cost.comp
a method of valuing all units in inventory at the same average per unit cost
merchandise intended for resale to customers
the loss of merchandise through such causes as shoplifting, breakage, spoilage
gross sales revenue less sales returns and allowances and sales discount. First figure shown in income statement
the repeating sequence of transactions by which a business generates its revenue and cash receipts from customers
Periodic Inventory System
eliminates the need for recording the CGS as sales occur. Amount of inventory and CGS are not known until a complete physical inventory at year-end
Perpetual Inventory System
Accounting for merchandise transactions in which the inventory and CGS are kept perpetually up to date
Point of Sale (POS) terminal
electronic cash registers for computer based processing of sales transactions. identifies each item of merchandise from bar code automatically updating sales and inventory. Used for high volume low cost merchandise.
sales per square foot of selling space
measure of efficient use of available space
accounting record for recording large numbers of a type of transaction quickly and efficiently
ledger contain separate accounts for each item making up balance of control account in general ledger. Account balances in subsidiary= balance in general ledger control account
taking a physical inventory
the procedure of counting all merchandise on hand and determining its cost
accounts receivable turnover rate
ratio used to measure the liquidy of Accounts Receivable and the reasonableness of the accounts receivable balance. computed by dividing sales by average receivables.
aging the accounts receivable
The process of classifying accounts receivable by age groups such as current, 1 to 30 days past due, 31 to 60 days past due, a step in estimating the uncollectible portion of the accounts receivable.
allowance for doubtful accounts
A valuation account or contra-asset account relating to Accounts Receivable and showing the portion of the receivables estimated to be uncollectible.
an analysis that explains the difference between the balance of cash shown in the bank statement and the balance of cash shown in the depositors records.
very short-term investments that are so liquid that they're considered equivalent to cash. examples include money market funds, US treasury bills, certificates of deposit, and commercial paper. These investments must mature within 90 days of acquisition.
planning, controlling, and accounting for cash transactions and cash balances.
a minimum average balance that a bank may require a borrower to leave on deposit in a non interest bearing account.
failure to pay interest or principle of a promissory note at the date due
direct write off method
a method of accounting for uncollectible receivables in which no expense is recognized until individual accounts are determined to be worthless. At that point the account receivable is written off, with an offsetting debit to uncollectible accounts expense. fails to match revenue and related expenses and is used primarily for tax accounting.
transactions in which a business either sells its accounts receivable to a financial institution or borrows money by pledging its accounts receivable as collateral.
fair value accounting
the balance sheet valuation standard applied to investments in marketable securities. involves adjusting the securities to market value at each balance sheet date.
cash and assets convertible directly into known amounts of cash.
an increase in owners equity resulting from a transaction other than earning revenue or investment by the owners. the most common example is the sale of an asset at a price above book value.
line of credit
a prearranged borrowing agreement in which a bank stands ready to advance the borrower without delay any amount up to a specified credit limit. once used, a line of credit becomes a liability. the unused portion of the line represents the ability to borrow cash without delay.
a decrease in owners equity resulting from any transaction other than an expense or a distribution to the owners. the most common example is the sale of an asset at a price below book value
highly liquid investments, primarily in stocks and bonds, that can be sold at quoted market prices in organized security exchanges.
net realizable value
the balance sheet valuation standard applies to receivables. equal to the gross amount of accounts and notes receivable, less an estimate of the portion that may prove to be uncollectible.
JIT just in time inventory system
technique designed to minimize a company's investment in inventory. receiving purchases of raw materials just in time for the use in manufacturing process and completing the manufacture of finished goods just in time to fill sale orders
a customers check that was deposited but returned because of lack of funds in the account on which the check is drawn.
losses of inventory due to theft spoilage or breakage
recording as the cost of goods sold the actual costs of the specific units sold. necessary if each unit in inventory is unique.
write down(of an asset)
a reduction in the carrying amount of an asset because it has become obsolete or its usefulness has otherwise been impaired.
gross profit method
a method of estimating the cost of the ending inventory based on the assumption that the rate of gross profit remains approximate the same from year to year
Method o computing the cost of inventory and the cost bid goods sold based on the assumption that the first merchandise acquired is the first merchandise sold and that the ending inventory consists of the most recently acquired goods
term meaning the sellers. ears the cost of shipping goods to the buyers location. title to the goods remains with the seller while goods are in transit
FOB shipping point
the buyer of goods bears the cost of transportation from the sellers location to the buyers location. title to the goods passes at the point of shipment and the goods are be property of the buyer while in transit
unrealized holding gain on investments
a stockholders equity account representing the difference between the cost of investments owned and their market value at the balance sheet date. in short gains or losses on these investments that have not been realized through the sale of securities.
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