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Accounting 110 3rd Test

Purchase Order
authorizes purchase of inventory from approved vendor
Receiving Report
establishes initial record of receipt of inventory
Physical Inventory
count of inventory
FIFO
first in, first out
LIFO
last in, first out
Weighted Average
Total Cost of Units Available for Sale / Units Available for Sale
Inventory (Illusory) Profits
FIFO gross profit and net income
Net Realizable Value
Estimated Selling Price – Direct Costs of Disposal
Inventory Turnover
COGS / Average Inventory
Number of Days’ Sales in Inventory
Average Inventory / Average Daily COGS
Sales
reported revenue of merchandise sold
Gross Profit
profit before deducting operating expenses
Gross Profit
Sales – COGS
Service Business
Fees Earned – Operating Expenses = Net Income
Merchandising Business
Sales – COGS = Gross Profit
Gross Profit – Operating Expenses = Net Income
Merchandise Inventory
merchandise on hand (not sold) at end of accounting period
Operating Cycle
1. Cash
2. Purchasing Activity
3. Products
4. Sales Activity
5. Accounts Receivable
6. Collection Activity
Subsidiary Ledger
large number of individual accounts with common characteristic are grouped
General Ledger
primary ledger which contains all of the balance sheet and income statement accounts
Controlling Account
summarizing account presented in general ledger of subsidiary ledger
Accounts Receivable Subsidiary Ledger
“customers ledger”, lists customer accounts in alphabetical order, and controlling account is Accounts Receivable
Accounts Payable Subsidiary Ledger
“creditors ledger”, lists creditor accounts in alphabetical order, and controlling account is Accounts Payable
Inventory Subsidiary Ledger
“inventory ledger”, lists inventory by bar code number, and controlling account is Inventory
Special Journals
separate journals that generate purchase, sales, and inventory reports
Perpetual Inventory System
each purchase and sale of merchandise is recorded in inventory account and related subsidiary ledger
Periodic Inventory System
inventory does not show amount of merchandise available for sale and amount sold, determines inventory on hand only at end of accounting period
Physical Inventory
listing of inventory on hand used in periodic inventory system prepared at the end of accounting period
Credit Terms
terms for when payments for merchandise are to be made
Credit Period
amount of time buyer has to pay that begins on the date of sale as shown on the invoice
Purchases Discounts
discounts taken by the buyer for early payment of invoice that reduces cost of merchandise purchased
Debit Memorandum (Memo)
informs seller of amount buyer proposes to debit to account payable
Credit Memorandum (Memo)
authorizes a credit (decrease) to buyer’s account receivable
Free On Board (FOB) Shipping Point
buyers pay freight costs from shipping point to final destination
Free On Board (FOB) Destination
sellers pay freight costs from shipping point to buyer’s final destination
Operating Income
Gross Profit – Operating Expenses
Selling Expenses
incurred directly in selling of merchandise
Administrative (General) Expenses
incurred in administration or general operations of the business
Other Income
revenue from sources other than primary operating activity of a business
Other Expense
expense that cannot be traced directly to normal operations of a business
Inventory Shrinkage (Shortage)
Account Balance of Merchandise Inventory – Physical Merchandise Inventory on Hand, there is a difference between a physical count of inventory and inventory records
Ratio of Net Sales to Assets
Net Sales / Average Total Assets
Perpetual Inventory System
Beginning Inventory + Purchases – Ending Inventory = COGS
Periodic Inventory System
Beginning Inventory + (Price – Price Returns – Price Discounts + Freight In) – Ending Inventory = COGS
Retained Earnings Statement
shows net income, dividends, and beginning and ending retained earnings
Income Statement
financial statement that changes the most when comparing a retail and service business
Retained Earnings Statement
financial statement that changes the least when comparing a retail and service business
Net Sales
Sales – Sales Returns and Allowances – Sales Discounts
Sales
account with a normal credit balance
Debit to Sales Returns and Allowances
entry to record the return of merchandise from a customer
Cost Flow
order where costs were incurred when using FIFO
Cost Flow
reverse order where costs were incurred when using LIFO
LIFO
inventory costing method that reports the earliest costs in ending inventory
Perpetual Inventory
accounting records maintain a continuously updated inventory value
LIFO
method of inventory that will result in reporting the greatest cost of merchandise sold when prices are consistently rising
Inventory Turnover and Number of Days’ Sales in Inventory
used to analyze the efficiency and effectiveness of inventory management

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