35 Cards in this Set
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Income Summary
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a temporary account only used for the closing process
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Revenue accounts
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begin each accounting period with zero balances
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Current Ratio Calculation
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Current Assets / Current Liabilties
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Work Sheet
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a tool to help organize information needed in adjusting the accounts and preparing the financial statements.
Not a required report
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Closing Entries
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All temporary accounts are closed but not the permanent accounts.
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Permanent Accounts
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Report on activities related to one or more future acct periods
Carry ending balance into next period
Assets, liabilities, and equity accounts are not closed; these accounts are called
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A wholesaler
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an intermediary that buys products from manufacturers or other wholesalers and sells them to consumers.
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Gross Profit Equation
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Net Sales - COGS
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Operation Expense Equation
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Gross Profit - Net Income
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Another word for Gross profit
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gross margin
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Credit terms for a purchase include the amounts and timing of payments from a buyer to a seller.
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TRUE
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Purchase allowances
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refer to merchandise a buyer acquires but then returns to the seller.
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Purchase Discounts Equation
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Discount %, #of days discount rate is available, net, credit period
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Seller
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responsible for paying shipping charges and bears the risk of damage or loss in transit if goods are shipped FOB destination.
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Merchandise purchased with transportation costs, returns, and with discount Equation
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((Merch. Cost - Cost of Returns) x Discount Decimal)) + Transportation Costs =
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A company purchased $4,000 worth of merchandise. Transportation costs were an additional $350. The company later returned $275 worth of merchandise and paid the invoice within the 2% cash discount period. The total amount paid for this merchandise is:
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$4,000.50
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Perpetual Inventory Journal Entry Equation
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Accounts Payable x Discount Decimal =
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A company has net sales and cost of goods sold of $825,000 and $547,000, respectively. Its net income is $98,500. The company's gross margin and operating expenses are ________ and ____________, respectively.
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$278,000; $179,500
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Cost of an Inventory Item
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includes its invoice cost minus any discount, and plus any added or incidental costs necessary to put it in a place and condition for sale.
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Goods on consignment
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goods shipped by their owner, called the consignee, to another party called the consignor.
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Incidental costs
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import duties, freight, storage, and insurance.
often added to the costs of inventory
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Consistency Concept
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a company uses the same accounting methods period after period, so that financial statements are comparable across periods.
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According to the lower of cost or market, the inventory should be written down how
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...
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Net realizable value (NRV)
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the expected selling price in the ordinary course of business minus the cost necessary for completion and disposal.
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The 'days' sales in inventory' ratio
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ending inventory / cost of goods sold x 365
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Damaged and obsolete goods that can be sold-
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Are included in inventory at their net realizable value
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LIFO
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assigns the most recent costs to cost of goods sold, and does a better job of matching current costs with revenues on the income statement.
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Tops had cost of goods sold of $9,421 million, ending inventory of $2,089 million, and average inventory turnover of $1,965 million. Its days' sales in inventory equals:
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80.9.days.
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Merchandise inventory
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All goods owned by a company and held for sale
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Goods in transit are included in a purchaser's inventory:
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When the purchaser is responsible for paying freight charges
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Temporary Accounts
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include all income statement accts, the withdrawals accts, and the income summary report
Accts accumulate data related to one acct period
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FOB shipping point
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indicates that the sale occurred at the shipping point
buyer should take responsibility for the cost of transporting the goods
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FOB destination Point
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indicates that the sale will occur when it arrives at the destination—at the buyer's receiving dock.
Seller should take responsibility for the cost of transporting the goods
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consignor
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is the person sending a shipment to be delivered
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consignee
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the entity who is financially responsible (the buyer) for the receipt of a shipment
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RETL 261: Exam 2