General Facts
Type of shipping cost where the buyer pays
FOB Shipping Point
What accounts are credited and debited when you purchase inventory on account?
Debit inventory, credit accounts payable
What is different about a merchandiser's closing accounts vs. a service business'?
The merchandiser includes COGS when closing expenses to Income Summary
What are Gross Sales?
Total sales revenue before subtracting for expenses, discounts, returns, and allowances
Current Ratio
Current Assets / Current Liabilities
This type of inventory keeps a running tally and is counted frequently
Perpetual Inventory
What is the entry for a business when it pays FOB Shipping Point?
Debit Inventory, Credit Cash
Why must a merchandiser use adjusting entries?
Inventory maybe damaged, stolen, lost, etc., but not sold
What are Net Sales?
Gross Sales - Discounts - Returns & Allowances
Debt Ratio
Total Liabilities / Total Assets
A buyer receives what discount in what time period if it is written as: 3/10 n/30
3% discount within 10 days of ordering, with the total amount due in 30 days
What is the entry for when a business pays a supplier within the discount period?
Debit A/P for full amount
Credit Cash for discounted amount
Credit Inventory for the value of the discount
What is the adjusting entry for when a business has less inventory than they think?
Debit COGS, Credit Inventory
What is Gross Profit/Gross Margin?
Net Sales - COGS
Gross Profit Percentage
Gross Proft / Net Sales
What are COGS?
Cost of Goods Sold, or the value of inventory you sell based on how much you paid for it.
What are the entries for when a merchandiser makes a sale on account?
1. Debit A/R, Credit Sales Revenue
2. Debit COGS, Credit Inventory
Debit Income Summary
Credit Service Revenue, Sales Revenue
How is Net Income Calculated?
Gross Profit - Operating Expenses
Why can ratios not tell a business much by themself?
They must be compared to competitors or past years
What is inventory turnover and how is it calculated?
It is how fast you can sell inventory, and it is calculated with: COGS / Average Inventory
What are the entries for when a customer returns merchandise?
1. Debit Sales Returns & Allowances, credit A/R
2. Debit Inventory, Credit COGS
How does Gross Profit affect the adjusting entries?
It doesn't
How are COGS and operating expenses different?
COGS is the value of inventory that is sold. Operating expenses are expenses incurred during the process of doing business, like utilities expense, marketing expense, etc.
What is trend analysis?
Comparing ratios and business performance to past years.