Financial Accounting Part 2

Financial Accounting Part 2 - FINANCIAL ACCOUNTING PART 2...

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FINANCIAL ACCOUNTING PART 2 Question 1 of 53 ________ ________ is the total invoice price of goods sold (shipped) or services rendered during a given period. Gross sales. Gross sales does not include taxes as that is collected on behalf of the government and is accounted for as a liability until it is paid. Question 2 of 53 Returns and Allowances and Sales Discounts are subtracted from the Gross Sales figure to determine ______ _______. Net sales. Sales returns and allowances represent the sales value of goods that were returned or allowances made to customers because of defective product/service. Sales discounts are often given to volume customers or customers who pay invoices within a short period of time. Example: a business offers a 2% discount to customers who pay with 10 days of receiving an invoice (2, 10, net 30). If a customer who bought $1000 worth of goods takes advantage of this discount, the business still records $1000 revenue but cash is increased by $980 and sales discounts increases by $20. The effect on the Income statement will be that Net sales is $20 less than Gross Sales. Question 3 of 53 The cost to the entity of the goods or services being sold is called _______. COGS (Cost of Goods Sold). COGS is also referred to as Cost of Sales (COS). In most non- service businesses, the COGS is represented by a decrease in the inventory assets which have been consumed to generate the sales revenue. For example, a grocery store’s COGS is the cost it paid for the groceries it sells to consumers. Question 4 of 53 The difference between Net Sales and the COGS (Cost of Goods Sold) is called _______ _________. Gross Margin. The Gross Margin is usually shown on a separate line of the Income Statement. It is sometimes referred to as gross profit. Question 5 of 53 1
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Dividing the Gross Margin by the Net Sales gives the Gross Margin ____________. Percentage. This gross margin percentage indicates the average margin obtained on goods or services sold. This percentage is useful in comparing income statements between companies or from period to period within the same company. Although Gross Margin percentages vary widely from industry to industry, the value should be relatively the same in companies in the industry or between periods. Question 6 of 53 Math practice question for finding Gross Margin Percentage. Question 7 of 53 The _________ ________ is derived from Net Income divided by Net Sales. Profit margin. Profit margins indicate the average amount of income generated per net sale. This figure is also equivalent within an industry but varies widely depending on the nature of the business. Profit Margins are easily calculated and provide a very elementary assessment of a firm’s profitability. Question 8 of 53
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This note was uploaded on 04/27/2010 for the course MATH 327 taught by Professor Schultz during the Spring '09 term at Christian Brothers.

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Financial Accounting Part 2 - FINANCIAL ACCOUNTING PART 2...

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