For diving into merchandising accounting, a solid grasp of key terms used is crucial. Below summary provides a clear and concise guide to help navigate these terms:
| Term | Meaning | Example |
| Credit Terms | Conditions under which the seller extends credit to the buyer | Terms “3/15 net 30” means the buyer gets a 3% discount if paid within 15 days, otherwise, the full amount is due in 30 days |
| EOM (End of Month) | Credit terms indicating the payment period starts at the end of the month. | Terms “2/10 EOM” means the buyer can take a 2% discount if payment is made within 10 days after the end of the month in which the purchase was made. |
| ROG (Receipt of Goods) | Credit terms indicating the payment period starts from the receipt date of goods. | Terms “2/10 ROG” means the buyer can take a 2% discount if payment is made within 10 days of receiving the goods. |
| FOB Shipping Point | Buyer pays shipping costs, and ownership transfers at the shipping point. | A retailer orders goods FOB Shipping; the buyer becomes responsible for the goods and shipping costs as soon as they leave the supplier’s warehouse. |
| FOB Destination | Seller pays shipping costs, and ownership transfers when goods arrive at the buyer’s location. | Goods purchased FOB Destination only transfer ownership and risk to the buyer once delivered to the buyer’s premises. |
| Purchases | Acquisition of goods for resale. | A retailer purchases 1,000 units of product for $20 each. |
| Freight In | Shipping costs paid to bring inventory to the buyer’s location. | A retailer pays $500 for freight to have goods delivered to their warehouse. |
| Purchase Returns and Allowance | Discounts or refunds for returned goods or allowances given for defects. | A retailer returns $500 worth of defective goods to a supplier, reducing the total purchases by that amount. |
| Duties | Taxes paid on imported goods. | A company importing products from abroad pays $1,000 in customs duties to bring goods into the country. |
| Sales | Revenue from selling goods to customers. | A store sells 200 units at $50 each; sales revenue would be $10,000. |
| Freight Out | Shipping costs paid to deliver goods to the customer. | A company pays $100 to ship goods to a customer, this is considered Freight Out. |
| Sales Returns | Goods returned by customers, reducing total sales revenue. | A customer returns $200 worth of goods, reducing total sales by that amount |
| Sales Discounts | Reductions in the sales price to encourage prompt payment. | If a customer takes advantage of “2/10 net 30” terms, they can deduct 2% from the invoice amount for paying within 10 days. |
| Trade Discounts | Discounts offered to businesses or retailers based on quantity or as part of a long-term agreement. | A retailer gets a 10% trade discount for purchasing in bulk from a supplier |
| Markdowns | Reductions in the original selling price of inventory items. | A store reduces the price of clothing by 20% at the end of the season as a markdown to clear inventory. |
| Net Sales | Total sales minus sales returns, allowances, and discounts. | If gross sales are $10,000, but $1,000 in returns and discounts are applied, net sales would be $9,000. |
| Shrinkage | The loss of inventory due to factors like theft, damage, or clerical errors. | If physical inventory count reveals $1,000 missing from the books, it is considered shrinkage. |
| Perpetual Inventory System | A system that continuously updates inventory records. | Using barcodes and a point-of-sale system, a retailer tracks inventory levels in real time. |
| Periodic Inventory System | A system where inventory counts are updated at specific intervals, usually at the end of an accounting period. | A store performs a physical inventory count every quarter to adjust its records. |
| Stock Keeping Unit (SKU) | A unique identifier for each product type in inventory, used to track stock levels. | A store uses SKUs like 12345 for a specific shirt color and size, helping manage inventory efficiently. |
| Ending Inventory | The value of unsold goods at the end of an accounting period. | If a retailer has $2,000 worth of inventory remaining at the end of the month, this is their ending inventory. |
| COGS Available for Sale | Sum of beginning inventory and purchases for a given period. | If beginning inventory is $5,000 and new purchases are $10,000, COGS available for sale = $15,000. |
| COGS Available for Sale | Sum of beginning inventory and purchases for a given period. | If beginning inventory is $5,000 and new purchases are $10,000, COGS available for sale = $15,000. |
| Gross Profit | The difference between net sales and the cost of goods sold (COGS). | If net sales are $10,000 and COGS is $6,000, gross profit would be $4,000. |
| Operating Expenses | Costs incurred to run the business but not directly tied to inventory purchases. | Examples include rent, utilities, salaries, and marketing expenses. |
| Net Income | The final profit after deducting all expenses (including operating and interest expenses). | If gross profit is $4,000, and operating expenses are $2,500, net income would be $1,500. |
| Inventory Turnover | A measure of how quickly inventory is sold and replaced during a period. | If a company’s COGS is $12,000 and average inventory is $3,000, inventory turnover is 4 times. |
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