AC 200 Exam 2 with complete verified solutions

Defferral a revenue or an expense event that is recognized after cash has been exchanged prepaid items Deferred expenses (ex. prepaid insurance or prepaid rent) Revenue an increase in assets or a decrease in liabilities that a company obtains by providing customers with goods or servics cash discount Price reduction on merchandise sold offered by sellers to encourage prompt payment; when taken, represents a sales discount to the seller and a purchase discount to the buyer of the merchandise. common size financial statements financial statements in which dollar amounts are converted to percentages to aid in comparing financial data among periods and among companies cost of goods available for sale Total costs paid to obtain goods and ready them for sale, including the cost of beginning inventory plus purchases and transportation-in costs, less purchase returns and allowances and purchase discounts. cost of goods sold total cost incurred for the goods sold during a specific accounting period; percentage = COGS/net sales FOB destination Shipping term that means the seller bears the freight (transportation-in) costs. FOB shipping point Shipping term that means the buyer bears the freight (transportation-in) costs. gains increase in assets or decrease in liabilities from peripheral or incidental transactions Gross Margin the difference between sales revenue and cost of goods sold Gross Margin Percentage Expressing gross margin as a percentage of sales by dividing gross margin by net sales; the amount of each dollar of sales that is profit before deducting any operating expenses. Gross Profit the amount a company makes from selling goods before subtracting operating expenses Losses decreases in assets or increases in liabilities from peripheral or incidental transactions merchandise inventory finished goods held for resale to customers merchandising businesses companies that buy and resell merchandise inventory net income percentage Profitability measure that reflects the percent of net income each sales dollar generate net sales gross sales minus sales returns and allowance and purchase discounts operating income (or loss) Income after subtracting operating expenses from operating revenues. Gains and losses and other peripheral activities are added to or subtracted from operating income to determine net income or loss. period costs Expenses recognized in the period in which they are incurred regardless of when cash payments for them are made; costs that cannot be directly traced to products. product costs all costs directly traceable to acquiring inventory and getting it ready for sale, including transportation-in purchase discount Reduction in the gross price of merchandise offered to a buyer if the buyer pays cash for the merchandise within a stated time (usually within 10 days of the date of the sale). purchase returns and allowances A reduction in the cost of purchases resulting from dissatisfaction with merchandise purchased. retail companies businesses that sell merchandise directly to consumers return on sales Profitability measure that reflects the percent of net income each sales dollar generates; computed by dividing net income by net sales. Also called net income percentage sales discount Cash discount offered by the seller of merchandise to encourage a customer to pay promptly. When the customer takes the discount and pays less than the original selling price, the difference between the selling price and the cash collected is the sales discount. sales returns and allowances A reduction in sales revenue resulting from dissatisfaction with merchandise sold. schedule of cost of goods sold Internal report used with the periodic inventory system that reflects the computation of cost of goods sold. selling and administrative costs costs such as advertising expense and rent expense that cannot be directly traced to inventory; recognized as expenses in the period in which they are incurred shrinkage decreases in inventory for reasons other than sales to customers single-step income statement income statement format that presents net income in one step, the difference between total revenues and total expenses transportation- in Cost of freight on goods purchased under FOB shipping point terms; a product cost usually added to the cost of inventory. transportation- out Freight cost for goods delivered to customers under FOB destination terms; a period cost expensed when incurred. wholesale companies companies that sell goods to other businesses average number of days to sell inventory Financial ratio that measures the average number of days that inventory stays in stock before it is sold. consistency the GAAP that a company should continually use the same accounting method(s) so that its financial statements are comparable across time FIFO (first in, first out) inventory cost flow method in which cost of goods sold is computed as if the earliest items purchased are the first items sold full disclosure The accounting principle that financial statements should include all information relevant to an entity's operations and financial condition. Full disclosure frequently requires adding footnotes to the financial statements. gross margin method Technique for estimating the ending inventory amount without a physical count; useful when the percentage of gross margin to sales remains relatively stable from one accounting period to the next. inventory cost flow methods attractive ways to allocate the cost of goods available for sale between cost of goods sold and ending inventory