This document defines key accounting terms related to accrual accounting, expenses, revenue, depreciation, and uncollectible accounts. It also defines terms related to merchandising businesses including wholesalers, merchandise, trade discounts, cash discounts, cost of goods sold, returns and allowances, and freight terms.
This document defines key accounting terms related to accrual accounting, expenses, revenue, depreciation, and uncollectible accounts. It also defines terms related to merchandising businesses including wholesalers, merchandise, trade discounts, cash discounts, cost of goods sold, returns and allowances, and freight terms.
This document defines key accounting terms related to accrual accounting, expenses, revenue, depreciation, and uncollectible accounts. It also defines terms related to merchandising businesses including wholesalers, merchandise, trade discounts, cash discounts, cost of goods sold, returns and allowances, and freight terms.
ACCRUAL BASIS – the effects of transaction and other event are recognized when
they occur and not as cash is received or paid.
PREPAID EXPENSE - expenses that are paid in advance such as supplies, rent and insurance. DEFERRAL – it is the postponement of the recognition of an “expense already paid buy yet incurred” or “revenue already collected but not yet earned.” DEPRECIATION EXPENSE – proper accounting requires the allocation of the cost of the asset over its EUL. ASSET COST – the amount of an entity paid to acquire the depreciable asset. ESTIMATED SALVAGE VALUE – the amount that the asset can probably sold for at the end of its estimated useful life. ESTIMATED USEFUL LIFE – the estimated number of periods that an entity can make use of the asset. ACCUMULATED DEPRECIATION – the asset account is not directly reduced when recording the depreciation expense. This is a contra account used to reduce the cost to obtain the book value of the asset account. UNEARNED REVENUE – there are times when an entity receives cash for services or even before the service or rendered, or goods are delivered. When this happens, the entity has an obligation to perform services or deliver goods in the future. This transaction creates a liability which is referred to as? UNCOLLECTIBLE ACCOUNTS – entities often allow clients/customers to purchase goods or avail services on credit. Some of these accounts will never be collected; hence there is a need to reflect these as charges will against income. ------------------------------------------ MERCHANDISING - It is a business organization that involves buying and selling products, goods or merchandise to customers. WHOLESALER – It buys finished products or commodities from the manufacturer then resale them to other merchandising business, known as retailers. MERCHANDISE – It represents the commodities or stock of items bought by the merchandiser for resale to its customers for profit. TRADE DISCOUNTS – are deductions from the list or catalog price in order. CASH DISCOUNTS – They are the deductions from the invoice price when payment is made within the discount period. CREDIT PERIOD - It is the period during which a customer can pay or settle its account. TERMS – It is the number of days given to credit customer to avail discounts. FOB DESTINATION – This term of shipment means that the seller delivers the merchandise to the buyer's destination, free of transportation charges. FOB SHIPPING POINT – This term of shipment means the seller is responsible for the transportation charges to the shipping point, which is where the shipment originates. The buyer then will be responsible for any freight charges incurred to final destination. COST OF GOODS SOLD/ COST OF SALES – It refers to the cost of inventory that the business has sold to the customers. PURCHASE RETURNS & ALLOWANCES – granted by the seller discounted buyer who receives damaged or defective merchandise, of inferior quality or not in accordance with their specifications. DEBIT NOTE – this document formally informs the buyer that his/her account was decreased accordingly for the return made or for the reduction of price requested. INDIRECT EXPENSE – expenses incurred indirectly in selling the merchandise. GENERAL ADMINISTRATIVE EXPENSE – expenses incurred in the general administration of the business. SALES DISCOUNT – discounts gradient by the seller to the buyer to arouse prompt payment of accounts. FREIGHT BILL – designates which party shoulders the cost, and whether the shipment is freight prepaid or freight collect. They usually show the fob shipping point and destination FOB – FREE ON BOARD FOB SHIPPING POINT – buyer shoulders the shipping cost FOB DESTINATION – seller bears the shipping cost FREIGHT PREPAID – SELLER PAYS THE TRANSPO COST FREIGHT COLLECT – BUYER PAYS THE TRANSPO COST GROSS PRICE METHOD – recording purchases at invoice price is known as the