Accounting Ch 5

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Accounting Ch 5
2010-05-21 17:47:42
Merchandising operations multi step income statement

Ch 5
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  1. Cost of goods sold
    The total cost of merchandise sold during the period.

    • This expense is directly related to the revenue recognized from the sale
    • of goods
  2. Perpetual Inventory System
    • A detailed inventory system in which a company maintains the cost of
    • each inventory item and the records continuously show the inventory that
    • should be on hand.
  3. Periodic Inventory System
    • An inventory system in which a company does not maintain detailed
    • records of goods on hand and determines the cost of goods sold only at
    • the end of an accounting period.
  4. FOB shipping point
    • means that the seller places the goods free on board the carrier, and
    • the buyer pays the freight costs.
  5. FOB destination
    • means that the seller places the goods free on board to the buyer's
    • place of business, and the seller pays the freight.
  6. Purchase discount
    • A cash discount claimed by a buyer for prompt payment of a balance
    • due.

    • The credit terms of a purchase on account may permit the buyer to claim a
    • cash discount for prompt payment. The buyer calls this cash discount a purchase
    • discount. This incentive offers advantages to both parties: The
    • purchaser saves money, and the seller is able to shorten the operating
    • cycle by converting the accounts receivable into cash earlier.