Financial Accounting Exam 2 Latest Update
Inventory - ANSWER Merchandise that the company intends to sell to its customers
Merchandising Companies - ANSWER Companies that sell, but not manufacture,
merchandise to customers; wholesale and retail companies such as Wal-Mart, Nieman
Marcus
Manufacturing Companies - ANSWER Create merchandise from underlying raw
materials; Exxon and Boeing
Service Companies - ANSWER Provide services to customers; law firms, consulting
companies
True - ANSWER Accounting for inventories is important because it can have a material
effect on both the BALANCE SHEET (ENDING INVENTORY) and the INCOME
STATEMENT (COST OF GOODS SOLD)
Gross Sales Revenue - ANSWER Measures the value of inventory delivered to, and billed
to, customers, often referred to as the "invoice value"
Sales Returns and Allowances - ANSWER Contra-revenue account to record refunds to
customers or credits to the customer's account. Records the reduction in sales revenue
either because of the return of unsatisfactory merchandise or because an allowance
was granted on unsatisfactory merchandise.
Sales Discounts - ANSWER Contra-revenue account to record discounts given to
customers as an incentive for early payment of the customer's account.
Freight-Out - ANSWER Transportation cost paid by the seller on merchandise deliverd to
, the customer; this is a selling expense, not a contra-revenue account; not included in
net sales
Net Sales - ANSWER Gross Sales less all contra-revenue accounts (sales returns and
allowances and sales discounts)
Gross Purchase Cost - ANSWER Measures the cost of inventory acquired as billed to the
company by the supplier
Returns and Allowances - ANSWER Account used to record the reduction of the
purchase cost for the return of, or allowance granted for, unsatisfactory goods
purchased
Purchase Discounts - ANSWER Account used to record the reduction of the purchase
cost for discounts granted by the supplier for early payment of account payable
Freight-In - ACCOUNT To record the increase in the purchase cost of inventory due to
the transportation costs paid by the buying company; added to net purchases
Net Purchases - GROSS PURCHASE COST - Purchase Returns and Allowances -
Purchase Discounts + Freight-In
FOB Shipping Point - TITLE passes to the buyer when the goods are placed on the
common carrier and the buyer pays the shipping costs
FOB Destination - ANSWER Title passes to buyer when goods arrive at buyer's location
and seller pays shipping cost
COGS - ANSWER Expense on the income statement that represnets the cost of inventory
sold to customers to produce Sales Revenue
Inventory - ANSWER Merchandise that the company intends to sell to its customers
Merchandising Companies - ANSWER Companies that sell, but not manufacture,
merchandise to customers; wholesale and retail companies such as Wal-Mart, Nieman
Marcus
Manufacturing Companies - ANSWER Create merchandise from underlying raw
materials; Exxon and Boeing
Service Companies - ANSWER Provide services to customers; law firms, consulting
companies
True - ANSWER Accounting for inventories is important because it can have a material
effect on both the BALANCE SHEET (ENDING INVENTORY) and the INCOME
STATEMENT (COST OF GOODS SOLD)
Gross Sales Revenue - ANSWER Measures the value of inventory delivered to, and billed
to, customers, often referred to as the "invoice value"
Sales Returns and Allowances - ANSWER Contra-revenue account to record refunds to
customers or credits to the customer's account. Records the reduction in sales revenue
either because of the return of unsatisfactory merchandise or because an allowance
was granted on unsatisfactory merchandise.
Sales Discounts - ANSWER Contra-revenue account to record discounts given to
customers as an incentive for early payment of the customer's account.
Freight-Out - ANSWER Transportation cost paid by the seller on merchandise deliverd to
, the customer; this is a selling expense, not a contra-revenue account; not included in
net sales
Net Sales - ANSWER Gross Sales less all contra-revenue accounts (sales returns and
allowances and sales discounts)
Gross Purchase Cost - ANSWER Measures the cost of inventory acquired as billed to the
company by the supplier
Returns and Allowances - ANSWER Account used to record the reduction of the
purchase cost for the return of, or allowance granted for, unsatisfactory goods
purchased
Purchase Discounts - ANSWER Account used to record the reduction of the purchase
cost for discounts granted by the supplier for early payment of account payable
Freight-In - ACCOUNT To record the increase in the purchase cost of inventory due to
the transportation costs paid by the buying company; added to net purchases
Net Purchases - GROSS PURCHASE COST - Purchase Returns and Allowances -
Purchase Discounts + Freight-In
FOB Shipping Point - TITLE passes to the buyer when the goods are placed on the
common carrier and the buyer pays the shipping costs
FOB Destination - ANSWER Title passes to buyer when goods arrive at buyer's location
and seller pays shipping cost
COGS - ANSWER Expense on the income statement that represnets the cost of inventory
sold to customers to produce Sales Revenue
