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Chapter 5: Q18E (page 299)

Match the accounting terms with the corresponding definitions.

1. Credit Terms a. The cost of the merchandise inventory that the business has sold to customers.

2. FOB Destination b. An amount granted to the purchaser as an incentive to keep goods that are not 鈥渁s ordered.鈥�

3. Invoice c. A type of merchandiser that buys merchandise either from a manufacturer or a wholesaler and then sells those goods to consumers.

4. Cost of Goods Sold d. A situation in which the buyer takes ownership (title) at the delivery destination point.

5. Purchase Allowance e. A type of merchandiser that buys goods from manufacturers and then sells them to retailers.

6. FOB Shipping Point f. A discount that businesses offer to purchasers as an incentive for early payment.

7. Wholesaler g. A situation in which the buyer takes title to the goods after the goods leave the seller鈥檚 place of business.

8. Purchase Discount h. The terms of purchase or sale as stated on the invoice.

9. Retailer i. A seller鈥檚 request for cash from the purchaser.

Short Answer

Expert verified
  1. Credit term

h

  1. FOB Destination

d

  1. Invoice

i

  1. Cost of Goods Sold

a

  1. Purchase Allowance

b

  1. FOB Shipping Point

g

  1. Wholesaler

e

  1. Purchase Discount

f

  1. Retailer

c

Step by step solution

01

Definition of Business

The term business refers to an entity established by the association of individuals or groups after completing the associatedlegalities mandatory by thelaw of a country. A business can generateeconomic benefits and attain growth in the market.

02

Meaning of credit term

In accounting, credit term refers to the terms and conditions linked with the payment schedule. Such terms are mentioned on the invoice that explains the timings, due date, and discount.

03

Meaning of FOB destination

FOB destination refers to a situation where the seller retains the risk associated with the delivery of goodsriskassociated with the delivery of goods is retained by the seller until the buyer receives the same shipment.

04

Definition of invoice

A commercial document prepared by the seller is termed an invoice in accounting. It contains the essential details such as the name and address of buyer and seller, payment terms, description of price and quantity, and many more.

05

Definition of cost of goods sold

In accounting, the cost of goods sold refers to the total cost incurred by a business concern, including direct and indirect expenses spent on the production of the goods meant to be resold.

06

Explanation of purchase allowances

In accounting, purchase allowances refer to the specialreduction in the list price of the goods. The supplier gives such an allowance when the buyer agrees to retain the damaged, defective or incorrect goods.

07

Meaning of FOB shipping point

In accounting, FOB shipping point refers to a situation where the buyer bears the risk linked with the loss of goods once the goods are shipped from the seller鈥檚 end.

08

Definition of wholesaler 

A wholesaler refers to a merchandiser who directly deals with manufacturers and acquires bulk quantities for resale purposes. The wholesalers provide goods toretailers and other customers who buy huge quantities.

09

Meaning of purchase discount

In accounting, a purchase discount refers to a reduction in the price of the goods or services provided by a vendor to its customers to receive quick payments. Purchase discounts arecredited in the books of accounts.

10

Definition of retailer

A retailer indicates the individuals or business entities engaged in selling the goods or services to the end-users. They generally deal in small quantities and purchase stock from wholesalers.

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Most popular questions from this chapter

Rae Philippe was a warehouse manager for Atkins Oilfield Supply, a business that operated across eight Western states. She was an old pro and had known most of the other warehouse managers for many years. Around December each year, auditors would come to do a physical count of the inventory at each warehouse. Recently, Rae鈥檚 brother started his own drilling company and persuaded Rae to 鈥渓oan鈥� him 80 joints of 5-inch drill pipe to use for his first well. He promised to have it back to Rae by December, but the well encountered problems and the pipe was still in the ground. Rae knew the auditors were on the way, so she called her friend Andy, who ran another Atkins warehouse. 鈥淪end me over 80 joints of 5-inch pipe tomorrow, and I鈥檒l get them back to you ASAP,鈥� said Rae. When the auditors came, all the pipe on the books was accounted for, and they filed a 鈥渘o-exception鈥� report.

Requirements

1. Is there anything the company or the auditors could do in the future to detect this kind of fraudulent practice?

2. How would this kind of action affect the financial performance of the company?

Match the accounting terminology to the definitions.

1. Cost of Goods Sold

a. An inventory system that requires businesses to obtain a physical count of inventory to determine quantities on hand.

2. Perpetual inventory system

b. Expenses, other than the Cost of Goods Sold, that are incurred in the entity鈥檚 major ongoing operations.

3. Vendor

c. Excess of Net Sales Revenue over Cost of Goods Sold.

4. Periodic inventory system

d. The cost of merchandise inventory that the business has sold to customers.

5. Operating expenses

e. The individual or business from whom a company purchases goods.

6. Gross profit

f. An inventory system that keeps a running computerized record of merchandise inventory.

Capital City Motorcycle鈥檚 selected accounts as of December 31, 2018, follow:

Selling Expenses $ 10,500

Interest Revenue 1,000

Net Sales Revenue 113,500

Cost of Goods Sold 85,000

Administrative Expenses 8,000

Determine the gross profit percentage for the year ended December 31, 2018.

Clink Electric uses the periodic inventory system. Clink reported the following selected amounts at May 31, 2018:

Merchandise Inventory, June 1, 2017 \( 16,000 Freight In \) 6,000

Merchandise Inventory, May 31, 2018 21,500 Net Sales Revenue 138,000

Purchases 81,000 Common Stock 32,000

Purchase Discounts 3,000 Retained Earnings 17,000

Purchase Returns and Allowances 6,600

Compute the following for Clink:

a. Cost of goods sold.

b. Gross profit.

Question: Journalize the following transactions that occurred in January 2018 for Mike鈥檚 Amusements. Assume Mike鈥檚 uses the gross method to record sales revenue. No explanations are needed. Identify each accounts payable and accounts receivable with the vendor or customer name.

Jan. 4 Purchased merchandise inventory on account from Vanderbilt Company, \(5,000. Terms 1/10, n/EOM, FOB shipping point.

6 Paid freight bill of \)150 on January 4 purchase.

8 Returned half the inventory purchased on January 4 from Vanderbilt Company.

10 Sold merchandise inventory for cash, \(1,100. Cost of goods, \)440. FOB destination.

11 Sold merchandise inventory to Gilmore Corporation, \(10,100, on account, terms of 3/10, n/EOM. Cost of goods, \)5,555. FOB shipping point.

12 Paid freight bill of \(30 on January 10 sale.

13 Sold merchandise inventory to Cadet Company, \)8,800, on account, terms of 3/10, n/45. Cost of goods, \(4,400. FOB shipping point.

14 Paid the amount owed on account from January 4, less return and discount.

18 Purchased inventory of \)4,600 on account from Roberts Corporation. Payment terms were 1/10, n/30, FOB destination.

20 Received cash from Gilmore Corporation, less discount.

26 Paid amount owed on account from January 18, less discount.

28 Received cash from Cadet Company.

29 Purchased inventory from Silk Corporation for cash, \(12,000, FOB shipping point. Freight in paid to shipping company, \)240.
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