Question

Match the accounting terminology to the definitions.

1. Cost of Goods Sold	a. An inventory system that requires businesses to obtain a physical count of inventory to determine quantities on hand.
2. Perpetual inventory system	b. Expenses, other than the Cost of Goods Sold, that are incurred in the entity’s major ongoing operations.
3. Vendor	c. Excess of Net Sales Revenue over Cost of Goods Sold.
4. Periodic inventory system	d. The cost of merchandise inventory that the business has sold to customers.
5. Operating expenses	e. The individual or business from whom a company purchases goods.
6. Gross profit	f. An inventory system that keeps a running computerized record of merchandise inventory.

Short answer

1. Cost of Goods Sold	d. The cost of merchandise inventory that the business has sold to customers.
2. Perpetual inventory system	f. An inventory system that keeps a running computerized record of merchandise inventory.
3. Vendor	e. The individual or business from whom a company purchases goods.
4. Periodic inventory system	a. An inventory system that requires businesses to obtain a physical count of inventory to determine quantities on hand.
5. Operating expenses	b. Expenses, other than the Cost of Goods Sold, that are incurred in the entity’s major ongoing operations.
6. Gross profit	c. Excess of Net Sales Revenue over Cost of Goods Sold.

Step-by-step solution

Meaning of Inventory

The term inventory refers to the goods held by a business concern for resale. The sale of inventory is considered the primary source of generating revenues for the business entities.

Meaning of cost of goods sold

The cost of goods sold denotes the cost associated directly with the sale of products. It is computed by adding purchases in the opening inventory and subtracting the closing inventory.

Definition of perpetual inventory system

An inventory system that tracks the incoming and outgoing merchandise in a continuous manner is termed a perpetual inventory system. This inventory system record and maintains transactions electronically.

Meaning of vendor

In business terms, vendor denotes the person/individual or a business entity that sells the products or provides services to other business entities. Vendors provide goods at retail and wholesale prices.

Meaning of periodic inventory system

An inventory system that updates theinventory-related transactions on a periodic basis is termed a periodic inventory system. Under this system, a business entity tracks its opening and closing inventory.

Meaning of operating expenses

Operating expenses refer to the costs spent by a business entity on its core operations other than the cost of goods sold. It includes rent, utilities, salaries, and other expenses that facilitate business operations.

Meaning of gross profit

Gross profit denotes the profit generated by a company after deducting all the costs associated with manufacturing and selling a product. It is computed by subtracting the cost of goods sold from net sales revenue.