' equity appear on the right side of the accounting equation. To increase the balance on the right side, a credit is needed.) TIP #1: Typically revenue accounts are credited. TIP #2: If a cash sale occurs, the asset...
' equity appear on the right side of the accounting equation. To increase the balance on the right side, a credit is needed.) TIP #1: Typically revenue accounts are credited. TIP #2: If a cash sale occurs, the asset...
Our Explanation of Financial Ratios includes calculations and descriptions of 15 financial ratios. As you calculate the financial ratios you will also gain a deeper understanding of a company's operations and financial...
and expenses. Net Sales Wrong. Net Sales is Gross Sales minus Sales Discounts and Sales Returns and Allowances. Operating Income Right! 15. What is defined as sales minus all variable expenses? Contribution Margin...
income statement is created by dividing every amount on a company's income statement by the amount of its net sales. Net sales is the amount of gross sales minus the amount of sales returns, sales allowances, and...
season is finished, the merchandise returns from holiday sales are completed, and the January clearance sales have taken place. [The 52-53 week periods with 13-week quarters allows for better comparisons than calendar...
it is owed. The aging of accounts receivable is also useful for determining whether the credit balance in the Allowance for Doubtful Accounts is realistic. 2. A few of UXL Corporation’s general ledger accounts and...
increase stockholders’ (or owner’s) equity. There are a few revenue accounts that will have debit balances. Two examples are: Sales Discounts Sales Returns and Allowances Revenue accounts that are expected to have...
The temporary contra purchases account used in a periodic inventory system which represents the amounts of merchandise that were returned to suppliers and the amounts allowed as deductions by suppliers for goods not...
A revenue account that reports the sales of merchandise. Sales are reported in the accounting period in which title to the merchandise was transferred from the seller to the buyer.
the goods) and is typically a percentage of the selling prices. The seller must file a sales tax report and remit the sales taxes it had collected. Basically, the company making the sale and collecting the sales taxes...
The proportion of products sold. For example, if a car company sells 100,000 low-profit cars and 400,000 medium-profit cars and 500,000 high-profit trucks, it has a sales mix of 10% + 40% + 50%. If the total number of...
An allowance granted to a customer who had purchased merchandise with a pricing error or other problem not involving the return of goods. If the customer purchased on credit, a sales allowance will involve a debit to...
A special or specialized journal to record sales of merchandise to customers. In a manual system this saves a significant amount of recording time. In today’s computerized environment, sales are recorded...
Why are sales a credit? Definition of Sales In accounting, sales are revenues earned when a company transfers ownership of its goods to its customers. Under the accrual basis or method of accounting, the sale occurs when...
This indicates (on average) how many days it takes to sell the merchandise held in inventory. To learn more, see Explanation of Financial Ratios.
A projection or estimate of the future quantities and selling prices of products and/or services.
Sales made on account. Sales where the customer is allowed to pay at a later date. Noncash sales.
What is the cost of sales? Definition of Cost of Sales Cost of sales is often a line shown on a manufacturer’s or retailer’s income statement instead of cost of goods sold. The cost of sales for a manufacturer is the...
A selling expense account shown on the income statement in order to match this expense to the related sales.
What is net sales? Definition of Net Sales Under the accrual basis of accounting, net sales is the total amount of goods shipped/delivered to customers during a specified period of time minus any early payment...
What are sales discounts? Definition of Sales Discounts Sales discounts (if offered by sellers) reduce the amounts owed to the sellers of products, when the buyers pay within the stated discount periods. Sales discounts...
See sales.
What are sales taxes? In the United States, most of its 50 States assess a sales tax, which is a tax on sales to the end user. For example, in the state of Wisconsin a retailer must collect a 5% sales tax and perhaps...
What is sales mix? Definition of Sales Mix Sales mix is the relative proportion or ratio of a business’s products that are sold. Sales mix is important because a company’s products usually have different degrees of...
What are credit sales? Definition of Credit Sales As opposed to cash sales, credit sales (or sales on credit) allow the customer to pay the seller at a later date. Perhaps the seller allows its credit worthy customers to...
See cost of goods sold.
Cost of goods sold is usually the largest expense on the income statement of a company selling products or goods. Cost of Goods Sold is a general ledger account under the perpetual inventory system. Under the periodic...
transferring title to its goods at either: the time the goods are shipped (the terms are FOB shipping point), or the time the goods are delivered to the buyer (the terms are FOB destination) It is at one of these points...
in the goods, etc. In the case of a purchase allowance, the buyer does not return the merchandise to the supplier. Example of a Purchase Allowance A retailer ordered 10 items at a cost of $15 each from one of its...
This indicates (on average) how many days of credit sales have not yet been collected. If the credit terms are net 30 days, you would expect this to be at least 30 days. To learn more, see Explanation of Financial...
Is sales tax an expense or a liability? Definition of Sales Tax In the U.S., a sales tax is a state tax (and possibly an additional city and/or county tax) that is paid by the buyer at the time of purchase. The...
Inventory is dormant and contains only the cost of the prior year’s ending inventory. With the periodic inventory system, the costs of additional purchases of goods are debited to the temporary account Purchases....
An indicator of profitability that is measured by dividing the accounting net income by the amount invested.
The result of dividing a corporation’s net income by the average amount of common stockholders’ equity during the time interval when the net income was earned. To learn more about this ratio, see Explanation...
A reduction in the cost of goods purchased that is allowed by the supplier based on the authorized return of goods. Also a general ledger account in which the purchase returns are recorded under the periodic inventory...
The rate that will discount all cash flows to a net present value of zero.
What is a purchase return? Definition of Purchase Return A purchase return occurs when a buyer returns merchandise that it had purchased from a supplier. Since the return of purchased merchandise is time consuming and...
A measurement of financial performance of a company’s operating division that is not responsible for its financing and income taxes. The calculation is likely to be 1) the division’s operating income before...
A financial ratio that expresses the income statement effect from employing an asset as a percentage of the asset’s cost on the balance sheet.
A term used in evaluating business investments. It represents the targeted rate that a company needs to earn. It is also referred to as the discount rate, because this rate is used to discount the future cash flows to...
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