Cost of Goods Sold
The cost of the inventory that the business has sold to customers. Also called cost of sales.
Cost of Sales
The cost of the inventory that the business has sold to customers. Also called cost of goods sold.
The terms of purchase or sale as stated on the invoice. A common example is 2/10, n/30
The individual or business that buys goods from a seller.
Free On Board
The purchase agreement specifies FOB terms to indicate who pays the freight. FOB terms also determine when title to the goods transfer to the purchaser.
Situation in which the buyer takes ownership at the delivery destination point and the seller pays the freight.
FOB Shipping Point
Situation in which the buyer takes ownership to the goods at the shipping point and the buyer pays the freight.
The transportation cost to ship goods INTO the warehouse; therefore, it is freight on purchased goods.
The transportation cost to ship goods OUT of the warehouse; therefore, it is freight on goods sold to a customer.
Expenses incurred that are not related to marketing the company’s products.
Excess of net sales revenue over cost of goods sold. Also called gross profit.
Gross Margin Percentage
Gross profit divided by net sales revenue. A measure of profitability. Also called gross profit percentage.
Excess of net sales revenue over cost of goods sold. Also called gross margin.
Gross Profit Percentage
Gross profit divided by net sales revenue. A measure of profitability. Also called gross margin percentage.
Income from Operations
Gross profit minus operating expenses. Also called operating income.
All the goods that the company owns and expects to sell to customers in the normal course of operations.
Ratio of cost of goods sold divided by average inventory. Measures the number of times a company sells its average level of inventory during a period.
A seller’s request for cash from the purchaser.
Businesses that sell merchandise, or goods, to customers.
Consists of buying and selling products rather than services.
Multi-Step Income Statement
Format that contains subtotals to highlight significant relationships. In addition to net income, it reports gross profit and operating income.
Purchases less purchase discounts and purchase returns and allowances.
Net Sales Revenue
Sales revenue less sales discounts and sales returns and allowances.
Number of Days in Inventory
Ratio that measures the average number of days that inventory is held by a company.
Expenses, other than cost of goods sold, that are incurred in the entity’s major line of business. Examples include rent, depreciation, salaries, wages, utilities, and supplies expense.
Gross profit minus operating expenses. Also called income from operations.
Other Revenue and Expense
Revenue or expense that is outside the normal day-to-day operations of the business, such as a gain or loss on the sale of plant assets.
Periodic Inventory System
A system in which the business does not keep a continuous record of inventory on hand. At the end of the period, the business takes a physical count of on-hand inventory and uses this information to prepare the financial statements.
Perpetual Inventory System
The computerized accounting inventory system in which the business keeps a constant/running record of inventory and cost of goods sold.
An amount granted to the purchaser as an incentive to keep goods that are not “as ordered.”
A discount that businesses offer to purchasers as an incentive for early payment.
A situation in which businesses allow purchasers to return merchandise that is defective, damaged, or otherwise unsuitable.
The amount that a merchandiser earns from selling its inventory. Short name for Sales revenue.
Reduction in the amount of cash received from a customer for early payment. Offered by the seller as an incentive fro the purchasers to pay early. A contra account to Sales revenue.
Sales Returns and Allowances
Decreases in the seller’s receivable from a customer’s return of merchandise or from granting the customer an allowance from the amount owed to the seller. A contra account to Sales revenue.
The amount that a merchandiser earns from selling its inventory. Also called Sales.
Expenses related to marketing and selling the company’s products.
Single-Step Income Statement
Format that groups all revenues together and then lists and deducts all expenses together without calculating any subtotals.
The individual or business from whom a company purchase goods. A merchandising company mainly purchases inventory from vendors.
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