Questions and Answers
What do the credit terms 2/10, n/30 signify?
What is the term for the expense of buying and preparing merchandise for sale?
Cost of goods sold
What does a debit to Sales Returns and Allowances and a credit to Accounts Receivable indicate?
Recognizes that a customer returned merchandise and/or received an allowance
The net method initially records the invoice at its net amount (net of any cash discount).
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Which account would be closed at the end of the accounting period with a debit?
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What does Sales less sales discounts, less sales returns and allowances equal?
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What do sales returns refer to?
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What is a trade discount?
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A single-step income statement includes cost of goods sold as another expense and shows only one subtotal for total expenses.
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A multiple-step income statement format shows detailed computations of net sales and other costs and expenses, and reports subtotals for various classes of items.
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Study Notes
Credit Terms
- 2/10, n/30 offers a 2% cash discount if paid within 10 days; the full balance is due in 30 days.
Cost of Goods Sold
- Represents the expenses incurred in purchasing and preparing merchandise for sale.
Sales Returns and Allowances
- A debit entry to Sales Returns and Allowances and a credit to Accounts Receivable signifies that merchandise was returned by a customer or an allowance was granted.
Net Method of Recording
- The net method records invoices at their net amount after deducting any cash discounts.
Closing Accounts
- At the end of the accounting period, Sales accounts are closed with a debit entry.
Net Sales Calculation
- Net sales are calculated as total sales minus sales discounts, returns, and allowances.
Definition of Sales Returns
- Sales returns occur when customers return merchandise to the seller post-sale.
Trade Discount Explanation
- A trade discount is a price reduction offered below the list price of merchandise.
Single-Step Income Statement
- This income statement approach treats cost of goods sold as a regular expense, presenting a single subtotal for total expenses.
Multiple-Step Income Statement
- The multiple-step income statement provides detailed calculations of net sales and other costs, displaying subtotals for different categories of items.
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Description
Test your knowledge of key accounting terms and concepts with these flashcards from Chapter 4. This quiz includes definitions related to credit terms, cost of goods sold, and sales returns. Perfect for reinforcing your understanding of essential accounting principles.
