- Gross profit rate is computed by dividing the cost of goods sold by net sales.
- As soon as a corporation is authorized to sell stock, an accounting journal entry should be made recording the total value of the shares authorized.
- Preferred stock has contractual preference over common stock in certain areas.
- An advantage of using the periodic inventory system is that it requires less record keeping than the perpetual inventory system.
- When no-par value stock does not have a stated value, the entire proceeds from the issuance of the stock become legal capital.
- When preferred stock is cumulative, preferred dividends not declared in a given period are called dividends in arrears.
- The journal entry to record the purchase of treasury stock will cause total stockholders' equity to decrease by the amount of the cost of the treasury stock.
- Operating expenses include interest expense and income tax expense.
- The par value of common stock must always be equal to its market value on the date the stock is issued.
- Treasury stock is reported as an asset on the balance sheet because treasury stock may later be resold.
- The Sales Returns and Allowances account and the Sales Discount account are both classified as expense accounts.
- Net sales minus cost of goods sold is called gross profit
- The liability of a stockholder is usually limited to the stockholder's investment in the corporation.
- The multiple-step income statement is considered by some to be more useful than the single-step income statement because it highlights the components of net income.
- If net sales are $750,000 and cost of goods sold is $600,000, the gross profit rate is 20%.
- Sales revenue is only earned during the period in which the cash is collected from the buyer
- The operating cycle involves the purchase and sale of merchandise inventory as well as the subsequent collection of cash from credit sales.
- If merchandise costing $5,000, with terms 2/10, n/30, is paid within 10 days, the amount of the purchase discount is $100
- The terms 2/10, net/30 mean that a 2 percent discount is allowed on payments made within the 10 days discount period.
- The revenue recognition principle is applied to merchandising companies by recognizing sales revenues when the performance obligation is satisfied.