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Key Terms

  • Cost of Goods Sold (COGS): Cost of merchandise sold during the period
  • Gross Profit: Sales Revenue - Cost of Goods Sold
  • Gross Profit Margin: (Gross Profit ÷ Net Sales) × 100
  • Inventory: Goods held for sale in the ordinary course of business
  • Merchandising Business: Business that buys and resells finished goods
  • Net Sales: Gross Sales - Sales Returns - Sales Allowances - Sales Discounts
  • Perpetual Inventory System: Inventory updated continuously with each purchase and sale
  • Periodic Inventory System: Inventory updated only at period end
  • Purchase Discount: Discount for early payment to supplier
  • Sales Discount: Discount for early payment by customer
  • Sales Returns: Merchandise returned by customers
  • Sales Allowances: Price reductions for damaged goods kept by customers