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48 Cards in this Set
- Front
- Back
How does a merchandiser earn net income?
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By buying and selling goods (merchandise).
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What is the difference between a wholesaler and a retailer business?
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A wholesaler buys products from a manufacturer or other wholesaler and then sells them to another wholesaler or retailer. A retailer buys products to sell to consumers.
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Net sales - Cost of goods sold =
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Gross Profit or Gross Margin
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Gross profit - Operating expenses =
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Net Income
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A merchandiser reports inventory as a ______ on the balance sheet.
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Asset
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The cost of inventory reported includes:
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- Cost of the product
- Cost of shipping - Cost of preparing goods for sale |
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Operating Cycle - Merchandiser
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Purchase inventory > credit sale > collect cash
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Inventory available for sale=
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Beginning inventory + net cost of purchases
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Perpetual Inventory System
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Continuously updates merchandise transactions in the accounting records.
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Periodic Inventory System
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Updates the accounting records for merchandise transactions only at the end of a period.
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Trade Discounts
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Discounts off the catalogue price (list price)
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Purchase Discounts
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Cash discounts to encourage the buyer to pay quickly
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Credit terms: 2/10 n/30
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2% discount if buyer pays within 10 days of the invoice date. Otherwise, the full amount is due in 30 days.
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Purchase Discount
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A reduction in the cost of unacceptable or defective goods.
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The buyer issues a debit memorandum to inform the seller-
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The accounts payable and the merchandise inventory accounts are reduced.
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The point of transfer is called..
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The FOB point
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FOB shipping point-
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Buyer accepts ownership when goods depart sellers' place of business; buyer pays shipping costs. Shipping costs increase the cost of inventory purchased.
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FOB destination-
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Ownership of goods transfers to buyer when goods arrive at buyers' place of business; seller pays shipping costs.
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A sales discount is a ________ _________ account.
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Contra-revenue
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Sales Allowances
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Reductions in the selling price of merchandise sold to customers for damaged or defective goods
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Inventory Shrinkage
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Term used to refer to loss of inventory. Compare physical counts with recorded amounts. Losses could be due to theft or deterioration.
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Acid-Test Ratio definition:
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Used to assess a company's liquidity or its ability to pay its current liabilities. Excludes less liquid assets.
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Acid Test Ratio Formula
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Quick Assets/Current Liabilities.. AKA Cash+ST Investments+Recievables/ Current Liabilities
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Gross Margin Ratio Definition
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Used to asses profitability before considering operating expenses.
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Gross Margin Ratio
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Net Sales- Cost of goods sold/ Net sales
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Goods in transit
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If ownership has passes to the purchaser, the goods are included in the purchasers inventory
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Goods on consignment
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Goods shipped by the owner (consignor) to another party (consignee).
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Consignee
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Person who sells goods for the owner
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Consignor
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The owner still owns the goods even though the goods aren't in their possession.
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Net Realizable Value
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Sales price-cost of making the sale
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The Cost of an Inventory Item Includes:
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- Invoice cost - any discount
- Costs to put in a place - Condition for sale |
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The matching principle
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States that inventory costs should be recorded against revenue in the period when inventory is sold
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Beginning Inventory + Net Purchases =
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Cost of goods available for sales
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First in, first out FIFO
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Assigns costs bases on the assumption that the inventory items are sold in the order purchased.
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Last in, first out LIFO
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Assumes that the most recent purchases are sold first.
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Weighted Average:
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Assumes costs flow in an average of the costs available.
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Weighted Avg. Formula is..
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Cost of inventory available for sale/# of units available for sale
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Specific Identification
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Requires that each item in an inventory be assigned its actual invoice cost
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Cost of goods available for sale=
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Cost of goods sold + ending inventory
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Inventory is reported on the ___________ ______.
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Balance sheet
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Consistency Principle
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Requires use of same accounting methods period after period so the financial statements are comparable across periods
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Full Disclosure Principle
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Requires statement notes report type of change, its justification, and it's affect on net income.
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Accounting priciples require that inventory be reported on the balance sheet at the...
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LCM, lower of cost or market.
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LCM is based on the..
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Conservation principle
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Inventory turnover is used to measure..
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How quickly a company sells its inventory and can affect a merchandiser's ability to pay its short term obligations.
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Inventory turnover is calculated by:
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Cost of goods sold/ Average Inventory
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Day's sales in inventory measures..
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How much inventory is available in terms of the number of days' sales.
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Day's sales is calculated by:
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Ending inventory/Cost of goods soldx365
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