Q18E - Horngren'S Financial And Managerial Accounting

Question

Match the accounting terms with the corresponding definitions.

1. Credit Terms                   a. The cost of the merchandise inventory that the business has sold to customers.

2. FOB Destination             b. An amount granted to the purchaser as an incentive to keep goods that are not “as ordered.”

3. Invoice                              c. A type of merchandiser that buys merchandise either from a manufacturer or a wholesaler and then sells those goods to consumers.

4. Cost of Goods Sold       d. A situation in which the buyer takes ownership (title) at the delivery destination point.

5. Purchase Allowance     e. A type of merchandiser that buys goods from manufacturers and then sells them to retailers.

6. FOB Shipping Point      f. A discount that businesses offer to purchasers as an incentive for early payment.

7. Wholesaler                       g. A situation in which the buyer takes title to the goods after the goods leave the seller’s place of business.

8. Purchase Discount       h. The terms of purchase or sale as stated on the invoice.

9. Retailer                             i. A seller’s request for cash from the purchaser.

Step-by-Step Solution

Answer

Credit term	h
FOB Destination	d
Invoice	i
Cost of Goods Sold	a
Purchase Allowance	b
FOB Shipping Point	g
Wholesaler	e
Purchase Discount	f
Retailer	c

Step 1: Definition of Business

The term business refers to an entity established by the association of individuals or groups after completing the associated legalities mandatory by the law of a country. A business can generate economic benefits and attain growth in the market.  

Step 2: Meaning of credit term

In accounting, credit term refers to the terms and conditions linked with the payment schedule. Such terms are mentioned on the invoice that explains the timings, due date, and discount. 

Step 3: Meaning of FOB destination

FOB destination refers to a situation where the seller retains the risk associated with the delivery of goods risk associated with the delivery of goods is retained by the seller until the buyer receives the same shipment. 

Step 4: Definition of invoice

A commercial document prepared by the seller is termed an invoice in accounting. It contains the essential details such as the name and address of buyer and seller, payment terms, description of price and quantity, and many more. 

Step 5: Definition of cost of goods sold

In accounting, the cost of goods sold refers to the total cost incurred by a business concern, including direct and indirect expenses spent on the production of the goods meant to be resold. 

Step 6: Explanation of purchase allowances

In accounting, purchase allowances refer to the special reduction in the list price of the goods. The supplier gives such an allowance when the buyer agrees to retain the damaged, defective or incorrect goods. 

Step 7: Meaning of FOB shipping point

In accounting, FOB shipping point refers to a situation where the buyer bears the risk linked with the loss of goods once the goods are shipped from the seller’s end.

Step 8: Definition of wholesaler

A wholesaler refers to a merchandiser who directly deals with manufacturers and acquires bulk quantities for resale purposes. The wholesalers provide goods to retailers and other customers who buy huge quantities.

Step 9: Meaning of purchase discount

In accounting, a purchase discount refers to a reduction in the price of the goods or services provided by a vendor to its customers to receive quick payments. Purchase discounts are credited in the books of accounts. 

Step 10: Definition of retailer

A retailer indicates the individuals or business entities engaged in selling the goods or services to the end-users. They generally deal in small quantities and purchase stock from wholesalers.