Chapter 5, Problem 1QS

Applying merchandising terms C1 P1

Enter the letter for each term in the blank space beside the definition that it most closely matches.

A. Sales discount
B. Credit period
C. Discount period
D. FOB destination
E. FOB shipping point
F. Gross profit
G. Merchandise inventory
H. Purchases discount
_1. Goods a company owns and expects to sell to its customers.
_2. Time period that can pass before a customer's full payment is due.
_3. Seller's description of a cash discount granted to buyers in return for early payment.
_4. Ownership of goods is transferred when the seller delivers goods to the carrier.
_5. Purchaser's description of a cash discount received from a supplier of goods.
_6. Difference between net sales and the cost of goods sold.
_7. Time period in which a cash discount is available.
_8. Ownership of goods is transferred when delivered to the buyer's place of business.

To determine

A trading business is the business concerned with buying merchandise or goods from manufacturer and selling it to the consumers for certain amount of profit. The difference between the sales and cost directly related to the procurement or production of goods is termed as gross profit. For the common purpose of early payments, seller and suppliers both reduce the price of goods which is called a discount.Free On Board (FOB) is term which specifies the place where the ownership or obligation and risk associated with goods transfers from seller to buyer.

To Match:

Match each term with the closest definition.

Given Info:

Definitions

1. Goods a company owns and expects to sell to its customers.

2. Time period that can pass before a customer's full payment is due.

3. Seller's description of a cash discount granted to buyers in return for early payment.

4. Ownership of goods is transferred when the seller delivers goods to the carrier.

5. Purchaser's description of a cash discount received from a supplier of goods.

6. Difference between net sales and the cost of goods sold.

7. Time period in which a cash discount is available.

8. Ownership of goods is transferred when delivered to the buyer's place of business.

Terms

A. Sales discount

B. Credit period

C. Discount period

D. FOB destination

E. FOB shipping point

F. Gross profit

G. Merchandise inventory

H. Purchase discount

Answer to Problem 1QS

Descriptions	Terms and Phrases
Definitions
1. Goods a company owns and expects to sell to its customers.	G. Merchandise Inventory
2. Time period that can pass before a customer's full payment is due.	B. Credit Period
3. Seller's description of a cash discount granted to buyers in return for early payment.	A. Sales Discount
4. Ownership of goods is transferred when the seller delivers goods to the carrier.	E. FOB Shipping point
5. Purchaser's description of a cash discount received from a supplier of goods.	H. Purchase Discount
6. Difference between net sales and the cost of goods sold.	F. Gross Profit
7. Time period in which a cash discount is available.	C. Discount Period
8. Ownership of goods is transferred when delivered to the buyer's place of business.	D. FOB Destination

Explanation of Solution

A. Sales Discount: A sales discount basically implies an intentional reduction in the price of a product by the seller as a reward for early payment.

B. Credit Period: It is the duration of time period until which the payment is due. In other words, if the credit period of credit transaction is over, a buyer must pay the full amount for the transaction.

C. Discount Period: A discount period is a time period provided by the seller within which a buyer has right to claim discount on the business transaction.

D. FOB Destination: The term FOB Destination implies that goods have been officially sold to the buyer when the goods reach the buyer's place of business which means ownership of the goods transferred at the delivery point.

E. FOB Shipping Point: FOB shipping point indicates that the obligations, cost or risk concerning the goods will shift from seller to buyer at shipping point of seller. In other words, it means that the buyer is officially responsible for the goods when the seller delivers it to the carrier.

F. Gross Profit: The difference between the direct revenue and direct expense of a business is called gross profit. It computed by deducting the cost of goods sold from net sales during the accounting period.

G. Merchandise Inventory: In a trading business, the goods purchased from manufacturer for the purpose selling it to the consumers is called merchandise inventory.

H. Purchase Discount: A purchase discount is an amount of concession provided by the suppliers to the purchaser with an expectation of early payment and also to attract more purchaser.