🗂️ View Lee’s Flashcards
An entity that buys products and sells them to end consumers aiming to earn a profit. They operate both as a buyer and seller, purchasing inventory and reselling it at a higher price.
Sales Revenue.
Merchandisers have "Sales Revenue"; Service companies have "Service Revenue".
Time between buying goods and receiving cash from selling those goods.
Transportation cost to ship goods into the purchaser's warehouse; thus considered part of inventory cost.
Cost to ship goods out of the seller's warehouse; treated as a selling expense.
Free On Board.
Ownership transfers at the "shipping point" — i.e. the buyer takes ownership and risk once the goods leave the seller's premises. The buyer typically pays for shipping.
Ownership transfers at the "destination" — i.e the seller retains ownership and risk until the goods reach the buyer's location. The seller typically pays for shipping.
A system where a merchandiser maintains a continuous, real-time record of inventory on hand, updating instantly with every purchase and sale.
Provides up-to-date information on inventory levels and cost data.
Requires sophisticated systems and software which might be expensive.
Merchandiser does not maintain a real-time record of inventory. Instead, inventory balances are updated at the end of an accounting period.
Beginning Inventory + Net Purchases = Goods Available for Sale - Ending Inventory = Cost of Goods Sold.
Ideal for small businesses with limited inventory items due to its simplicity.
Cannot provide real-time data about the cost of goods sold or profit margin.
Amount paid by merchandisers to procure products for resale. This includes the initial purchase price and other transactions/considerations that influence the final recorded cost of inventory.
Transportation-In Costs: Cost to transport inventory from suppliers to the buyer's place.
Purchase Discounts: Discounts for paying suppliers early, reducing inventory cost.
Perpetual system triggers a real-time journal entry for every transaction involving inventory. Periodic system accumulates all inventory-related transactions and adjusts the inventory count at specific intervals, such as at the end of each quarter or year.
Buying inventory now and paying for it at a later agreed-upon date.
2% discount if paid within 10 days. Entire invoice amount due 30 days after the purchase.
The actual cost of inventory after all adjustments: initial purchases adjusted for discounts, returns, allowances, and added shipping costs (if FOB Shipping Point).
A discount offered by suppliers for early payment of invoices. Reduces inventory costs.
Goods returned to the supplier if they are defective or not as expected. Deducted from payable, reducing the amount owed.
A negotiated price reduction for a defective item that the buyer decides to keep. Reduces the amount owed to the supplier and the total inventory cost.
The buyer pays for shipping and takes ownership once the goods leave the seller's premises. If goods are damaged during transit, it's the buyer's responsibility.
The seller pays for shipping. The ownership of the goods remains with the seller until they reach the buyer's location. The seller is responsible for any damage during transit.
To 'capitalize' inventory costs means to record these costs as assets (often added to the value of inventory) on the balance sheet. These costs are not immediately recognized as an expense on the income statement but are expensed over time as the asset is used or sold, aligning the expense with the period in which revenue is recognized.
Shipping costs are capitalized and added to the value of the inventory on the balance sheet from the buyer's perspective because these costs are considered part of the investment in the inventory.
The total amount a seller earns from selling products to another business.
It's an arrangement where the seller ships the goods to the customer immediately but expects payment at a later specified date based on the credit terms set.
1% discount if paid within 10 days. The full invoice amount is due 25 days after the purchase.
Incentives offered by the seller to buyers to encourage early payment, often in terms of a percentage off the invoice.
Goods that customers send back after a previous purchase, reducing the sales revenue.
Price reductions given to dissatisfied customers who choose to keep the product rather than returning it.
Gross Sales - Sales Discounts - Sales Returns and Allowances = Net Sales
The cost of the items that have been sold, representing how much it initially cost the seller to buy the products.
Net Sales - Cost of Goods Sold = Gross Profit
The buyer pays for shipping and takes ownership once goods leave the seller's premises. The seller records the sale at the point of shipment.
The seller pays for shipping and retains ownership until goods reach the buyer's location. Sale is recorded when goods reach the destination.
Because of the matching principle, which mandates that expenses be matched with the revenues they help generate.
A sale requires two journal entries: one detailing the sale amount (invoice to the buyer) and another noting the product's original cost (COGS).
Important: In a Perpetual Inventory System, you’ll make TWO entries:
- Record the sales (what you charged the customer).
- Account for the cost (your original purchase price of the inventory).
This method ensures COGS is updated in real-time!
Important: In a Perpetual Inventory System, you’ll make TWO entries:
- Record the sales (what you charged the customer).
- Account for the cost (your original purchase price of the inventory).
This method ensures COGS is updated in real-time!
Important: Record TWO entries: One for the sales return (at the selling price) and another for the cost of the inventory returned to us (what we paid for it).
Note: Only ONE entry is required, as only the sales are affected.
Similar to other entities, but also include entries to close Sales, Sales Returns and Allowances, Sales Discounts, and COGS.
Closing Revenues:
Closing Expenses:
- This is simply a hypothetical scenario.
- Depending on your exam, you may have only one expense account to close (e.g. Cost of Goods Sold), or multiple expense accounts needing closing (Depreciation Expense, Wages Expense, Rent Expense, Advertising Expense, etc.).
- In essence, the point I’m trying to illustrate is that, whatever expenses you see on the income statement — they will ALL need to be closed!
Or, sometimes you’ll see this:
Either journal entry means the same thing!
Important: In a Periodic Inventory System, you’ll only make ONE entry:
- Record the sales (what you charged the customer).
- You won’t account for the cost (your original purchase price of the inventory) until the end of the period.
COGS is only updated in real-time in Perpetual Inventory Systems!
Important: In a Periodic Inventory System, you’ll only make ONE entry:
- Record the sales (what you charged the customer).
- You won’t account for the cost (your original purchase price of the inventory) until the end of the period.
COGS is only updated in real-time in Perpetual Inventory Systems!
Important: In a Periodic Inventory System, you’ll only make ONE entry:
- Record the sales-side (the amount of your customer return).
- You won’t account for the cost (your original purchase price of the goods shipped back) until the end of the period.
COGS is only updated in real-time in Perpetual Inventory Systems!
Note: Only ONE entry is required, as only the sales are affected.
Similar to other entities, but also include entries to close Sales, Sales Returns and Allowances, Sales Discounts, and COGS.
- This is simply a hypothetical scenario.
- Depending on your exam, you may have only one expense account to close (e.g. Cost of Goods Sold), or multiple expense accounts needing closing (Depreciation Expense, Wages Expense, Rent Expense, Advertising Expense, etc.).
- In essence, the point I’m trying to illustrate is that, whatever expenses you see on the income statement — they will ALL need to be closed!
Continuous, real-time recording of inventory costs.
Inventory updated instantly post-transaction. COGS recognized after sales. Integrated with POS.
Current inventory & cost data. Swift discrepancy & theft identification. Enhanced inventory management.
Technologically complex and potentially costly.
Updates inventory periodically, typically quarterly or annually.
Beginning Inventory + Net Purchases = GAFS - Ending Inventory = COGS
Initial bottles of alcohol you already have at home.
The additional drinks you buy for the party.
Total number of bottles available for the party.
Consumed (COGS) or remains unconsumed (Ending Inventory).
Incentives by sellers to buyers for prompt payments.
Buyer: Maximize savings. Seller: Accelerate cash inflow.
% / Days, n / Days
1/10, n/60: 1% discount, within 10 days, full payment in 60 days. Any combination of terms can exist.
2/15, n/45: 2% discount, within 15 days, full payment in 45 days. Any combination of terms can exist.
Ownership transfers to Buyer when goods leave Seller Warehouse. Buyer typically covers shipping costs.
Ownership remains with Seller until goods arrive at Buyer Warehouse. Seller typically covers shipping costs.
Gross Sales - Sales Discounts - Sales Returns & Allowances = Net Sales
Contra-revenue account; reduces Sales Revenue.
Contra-revenue account; reduces Sales Revenue.
Sales Returns involve actual return of goods; Sales Allowances provide a price reduction without returning the goods.
Gross Profit = Net Sales - Cost of Goods Sold (COGS)
Another term for Gross Profit.
Beginning Inventory + Net Purchases.
An income statement format that consolidates all revenues and subtracts all expenses without categorizing them.
An income statement format that provides more detailed categories of revenues and costs, including COGS and Gross Profit.
Calculate Net Sales: Gross Sales - Sales Discounts - Sales Returns & Allowances = Net Sales
Determine Gross Profit: Net Sales - COGS = Gross Profit
Find Net Income: Gross Profit - Selling Expenses - General & Admin Expenses = Net Income or Loss
Beginning Inventory + Net Purchases = GAFS - Ending Inventory = COGS
Document that provides details regarding the amount due from a buyer to a seller; serves as a record for purchased inventory on credit.
A document that supports each sale; provides evidence of the obligation of the buyer to pay the seller.
Liability, as these amounts are owed to the government.
Paying within the discount period (within 10 days in this case) saves the buyer money.
By encouraging the buyer to pay early, the seller benefits from improved cash flow (i.e. receiving payment faster)
Difference between cost price and selling price.
Essential for covering operating expenses and making profit.
Markup Amount = Selling Price - Cost Price. Markup Percentage = (Markup Amount/Cost Price) × 100.
An income statement format that provides more detailed categories of revenues and costs, including COGS and Gross Profit.
$75 (Selling Price) - $50 (Cost Price) = $25 Markup; Markup Percentage = 50%* Markup / Cost = $25 / $50 = .50, or 50%
Times inventory is sold or used over a specific period. Measures efficiency.
Inventory Turnover = COGS/Average Inventory.
Loss of products from manufacture/purchase to sale.
Theft, record-keeping errors, transport damage, employee dishonesty.
Value decrease of inventory due to outdated products or lesser demand.
Products remain property of consignor until sold. Consignee sells for a commission.
Store sells products without stocking them. Buys from a third party post-sale who ships directly to customer.
Smallest amount of a product a supplier is willing to sell.
Oversight of end-to-end processes from raw materials to delivery to consumer.
Regulatory bodies overseeing goods movement across borders.
Companies that provide outsourced logistics services for merchandisers.
Final step in delivery from a distribution center to the end consumer.
Place where a customer pays the merchant for goods or services. Modern systems manage inventory, sales, and data.
Unique alphanumeric code for product identification and inventory management.
Amazon's fulfillment service; handles storage, packaging, shipping, customer service, returns, etc. Sellers store products in Amazon's centers.
Hands-off Fulfillment, Amazon Prime Eligibility, Scale, Global Reach, Multi-Channel Fulfillment.
Fees, Inventory Management, Brand Experience, Returns.
