Chapter 6, Accounting 1 Study Guide

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Chapter 6 Notes
o Cost Of Merchandise Sold- revenue is reported as sales, cost is reported as merchandise sold o Sales- Cost of Merchandise Sold = gross Profit
o Gross profit-operating expenses = net income

o Merchandise. Inventory- merchandise on hand (not sold) at the end of the accounting period o Multi-step income statement- contains several sections, subsections, subtotals o Sales-total amount charged customers for merchandise sold – (cash sales, and sales on acct.) o Sales returns and allowances-granted by seller to customers for damaged/defective merchandise. o Sales discounts-granted by seller to customer for early payment of amounts owed. o Example- 2% discount on $10,000, if paid in 10 days.

o Net sales-determined by subtracting sales returns & allowances, sales discounts from SALES. o Purchase discounts- when sellers offer customers discounts on early payments of bills. o Periodic system- inventory records do not show the amount available for sales or amount sold during period. o Sales

o Perpetual system-each purchase and sale of inventory is recorded in the inventory and the cost of merchandise sold account. o Selling Expenses-expenses that are incurred directly in the selling of merchandise o Administrative expenses-expense incurred in the administration or general operations of the business. o Other income- revenue from sources other than the primary operating activity of a business o Other expense- expense that can not be traced directly to operations o Single-step income statement- deducts the total of all expenses in one step from the total of all revenues o Account form- balance sheet with assets on left hand side & liabilities and owners equity on right hand side. o Report form-balance sheet presented in a downward sequence in three sections. o Credit terms- terms for when payments for merchandise are to be made, agreed on by the buyer and seller...
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