Key Terms
- cash discount
- provides a discount on the final price after purchase, if a retailer pays within a discount window, typically stated in days
- cost of goods sold (COGS)
- expense account that houses all costs associated with getting a product ready for sale
- FOB destination point
- transportation terms whereby the seller transfers ownership and financial responsibility at the time of delivery
- FOB shipping point
- transportation terms whereby the seller transfers ownership and financial responsibility at the time of shipment
- freight-in
- buyer is responsible for when receiving shipment from a seller
- freight-out
- seller is responsible for when shipping to a buyer
- goods in transit
- time in which the merchandise is being transported from the seller to the buyer
- gross margin
- amount available after deducting cost of goods sold from net sales, to cover operating expenses and profit
- gross profit margin ratio
- proportion of margin a company attains, above their cost of goods sold to cover operating expenses and profit, calculated by subtracting cost of goods sold from total net revenue to arrive at gross profit and then taking gross profit divided by total net revenues
- gross purchases
- original amount of the purchase without factoring in reductions for purchase discounts, returns, or allowances
- gross sales
- original amount of the sale without factoring in reductions for sales discounts, returns, or allowances
- income from operations
- gross margin less deductions for operating expenses
- merchandising company
- resells finished goods produced by a manufacturer (supplier) to customers
- net income
- when revenues and gains are greater than expenses and losses
- net purchases
- outcome of purchase discounts, returns, and allowances deducted from gross purchases
- net sales
- outcome of sales discounts, returns, and allowances deducted from gross sales
- operating cycle
- amount of time it takes a company to use its cash to provide a product or service and collect payment from the customer
- operating expenses
- daily operational costs not associated with the direct selling of products or services
- other revenue and expenses
- revenues and expenses not associated with daily operations, or the sale of goods and services
- ownership of inventory
- which party owns the inventory at a particular point in time, the buyer or the seller
- periodic inventory system
- updates and records the inventory account at certain, scheduled times at the end of an operating cycle
- perpetual inventory system
- system that automatically updates and records the inventory account every time a sale or purchase of inventory occurs
- physical inventory count
- manual stock check of inventory to make sure what is recorded on the books matches what is actually in the warehouse and on the sales floor
- point of transfer
- when the responsibility for the inventory transfers from the seller to the buyer
- purchase discounts
- provide an incentive for the retailer to pay early on their accounts, by issuing a reduced rate on their final purchase cost; the discount reduces the value of merchandise inventory
- purchase returns and allowances
- retailer receives a partial or full refund from the manufacturer for defective merchandise
- sales discounts
- reduction in the selling price offered to customers who pay their account within the discount period; the actual account is a contra revenue account that reduces sales
- sales returns and allowances
- contra revenue account with a normal debit balance that reduces the gross sales figure at the end of the period; the customer returns merchandise with a sales return, and keeps the merchandise with a sales allowance
- service company
- provides intangible services to customers, and does not have inventory
- trade discount
- reduction to the advertised manufacturer’s price during negotiation of a final purchase price