Note: Terms can be confusing for the reason the same term may be used in multiple ways and take a slightly different meaning in those ways or in differing circumstances. Consult Bob Parrish CPA or another professional
Accrual method: An accounting method under which you re-port your income when you earn it, whether or not you have received it. You generally deduct your expenses when you be-come liable for them rather than when you pay them.
At-risk rules: Rules that limit the amount of loss you may de-duct to the amount you risk losing in the activity.
Abstract fees: Expenses generally paid by a buyer to research the title of real property.
Active conduct of a trade or business: To determine if a trade or business is actively conducted requires an examination of all the facts and circumstances. Generally, for the section 179 deduction, a taxpayer is considered to actively conduct a trade or business if he or she meaningfully participates in the management or operations of the trade or business. A mere passive investor in a trade or business does not actively conduct the trade or business.
Adjusted basis: The original cost of property, plus certain additions and improvements, minus certain deductions such as depreciation allowed or allowable and casualty losses. ~ Adjusted basis. The adjusted basis of property is your original cost or other basis plus certain additions, and minus certain deductions such as depreciation and casualty losses. For detailed discussions: Property - Proof of Cost; Property Basis - Acquired by Gifts; Property Basis - Acquired by Inheritance; Property Basis - Recvd by Inheritance 2; Property Basis Acquired By Reacquisition. Property Sales - Business Property See also Basis
Amortization: A ratable deduction for the cost of intangible property over its useful life.
Amount realized: The total of all money received plus the fair market value of all property or services received from a sale or exchange. The amount realized also includes any liabilities assumed by the buyer and any liabilities to which the property transferred is subject, such as real estate taxes or a mortgage. ~~ Amount realized. The amount you realize from a disposition is the total of all money you receive plus the fair market value of all property or services you receive. The amount you realize also includes any of your liabilities that were assumed by the buyer and any liabilities to which the property you transferred is subject, such as real estate taxes or a mortgage.
Account Openers. Premiums or special promotional items offered to encourage the opening of new charge accounts.
Advance Bill. A bill presented to a purchaser before goods are actually received or service performed. May be requested by purchaser in order to include a payment within a certain accounting period.
Advance Order. An order placed well in advance of the desired shipment date. This practice generally enables a buyer to obtain a lower price for the goods since he has given the manufacturer business during slack periods.
Advertising Allowance. A monetary commitment made by a vendor to a retailer to share the advertising costs of a specified product, brand, or line. The allowance is generally a percentage of the retailer's purchases from the vendor and covers a percentage of the retailer's advertising cost.
Air Curtain. A stream of air used in food retailing establishments as a barrier to prevent the loss of heat of cold to the surrounding air. Used over some refrigerated or freezer cases as well as between some back rooms, etc.
Allowance from Vendor. See Returns and Allowances to Suppliers.
Allowance to Customers. See Returns and Allowances to Customers.
Amount recognized. Your gain or loss realized from a disposition of property is usually a recognized gain or loss for tax purposes. Recognized gains must be included in gross income. Recognized losses are deductible from gross income. However, a gain or loss realized from certain exchanges of property is not recognized. See Nontaxable exchanges, earlier. Also, you cannot deduct a loss from the disposition of property held for personal use.
Assistant Buyer. A buyer-in-training position involving exposure to all phases of the buyer's responsibilities, including the department budget, selecting and promoting merchandise, analyzing stock and sales reports, supervising sales and stock employees, summarizing information for the buyer.
Automatic Markdown Plan. Price reductions contingent upon the length of time merchandise has remained in stock.
Automatic Reorder. A system whereby supplies of staple merchandise are monitored and when they have been reduced to a predetermined minimum a reorder procedure is activated.
Backdoor Selling. Practice by a wholesaler of selling to consumers while representing himself as a supplier to retailers only.
Bailment Lease. A retail installment contract in which the merchandise is technically rented to the buyer and the rent is paid in installments. Whenever a predetermined number of rental payments has been made, title is given to the buyer on the payment of a nominal fee.
Balanced Stock. An assortment of merchandise with sufficient breadth and depth to meet demand of target customers while maintaining a reasonable investment in inventory. Also called model stock or ideal stock.
Bangtail. The perforated flap on an envelope which, when detached, serves as an order blank. Often included by stores when they mail monthly statement and accompanying inserts.
Bar Code. A configuration of alternating dark bars and light spaces, usually vertically arranged. Information is encoded into these bars and spaces by varying their individual widths. Use of a bar code system requires an optical code reader, bar-coded labels, and a computer. See also Universal Product Code (UPC).
Bill of Lading. A document issued by a carrier acknowledging receipt of a shipment. Bill indicates name of consignor and consignee, describes merchandise, and states shipping charges. In air shipping referred to as an airway bill. Both constitute contracts between shipper and carrier.
Book Inventory. A perpetual system of inventory maintained by adding the value of incoming goods to the value of previous inventory and then subtracting the value of sales, markdowns, and discounts.
Broker. A non-merchant middleman or marketing intermediary who brings buyers and sellers of a product together. Generally a broker does not take title to merchandise nor does he have physical possession of the goods. Most commonly operates in the grocery business. See also Commission Buying Office and Commission House.
Bulk Marking. Price is marked on large lots in original shipping containers. Individual pieces are marked with retail price at a later time.
Business Cycle. In retail trade, from February 1 through January 31.
BUSINESS PURPOSE TAX YEAR. A business purpose tax year is an accounting period that has a substantial business purpose for its existence. One non-tax factor that may be sufficient to establish a business purpose for a tax year is an annual cycle of business activity, called a "natural business year." A natural business year exists when a business has a peak and non-peak period. A natural business year is considered a substantial business purpose for an entity changing its accounting period. The IRS will ordinarily approve this change unless it results in a substantial deferral of income or another tax advantage.
Buyer. A line merchandising executive responsible for selecting and purchasing merchandise and for selling it at a profit. Among the buyer's duties are the supervision of the assistant buyers and salespeople, planning advertising and displays, stock control and pricing, and budgeting.
Buyer's Black Book. The retail buyer's unit control book.
Buyer's Order. The order blank or form used by a retail buyer to purchase merchandise from a vendor.
Buying Calendar. A retailer's buyer's plan of merchandising activities for a period (often six months) which includes special promotions and other seasonal events.
Buying Office. The buying office is made up of buyers in national or international market centers who daily shop the market in order to provide their clients or member stores with information and to select and buy merchandise for them. Buying offices are either independent (salaried office or commission buying office) or storeowned (private office, cooperative office, and corporate office).
Buying with Return Privileges. Merchandise is purchased from a vendor with the understanding that certain things may be returned for credit if they remain unsold.
Basis: A way of measuring an individual's investment in property for tax purposes. Basis is the amount of your investment in property for tax purposes. The basis of property you buy is usually the cost. Basis is used to figure gain or loss on the sale or disposition of investment property. ~ The cost or purchase price of property is usually its basis for figuring the gain or loss from its sale or other disposition. However, if you got the property by gift, inheritance, or in some way other than buying it, you must use a basis other than its cost. For Detailed discussion on basis see Property - Proof of Cost; Property Basis - Acquired by Gifts; Property Basis - Acquired by Inheritance; Property Basis - Recvd by Inheritance 2; Property Basis Acquired By Reacquisition
Business/investment use: Usually, a percentage showing how much an item of property, such as an automobile, is used for business and investment purposes.
Below-market loan:A demand loan (defined later) on which in-terest is payable at a rate below the applicable federal rate, or a term loan where the amount loaned exceeds the present value of all payments due under the loan.
Cafeteria Plan: Employers can generally exclude the cost of
providing qualified benefits through a cafeteria plan to an employee from his or
her wages. However, if the plan favors HIGHLY COMPENSATED OR KEY
EMPLOYEES, the employer must include in wages the cost of providing qualified
benefits to a highly compensated or key employee. A plan that the employer
maintained under a collective bargaining agreement does not favor highly
compensated employees. Most S corporations and other pass-throughs (not a
C Corporation) must include the benefits on the W2 of key employees.
Call:An option that entitles the purchaser to buy, at any time before a specified future date, property such as a stated num-ber of shares of stock at a spec-ified price.
Cash method:An accounting method under which you report your income in the year in which you actually or constructively re-ceive it. You generally deduct your expenses in the year you pay them.
Closely Held Corporation: Generally, a closely held corporation is a corporation that, in the last half of the tax year, has more than 50% of the value of its outstanding stock owned (directly or indirectly) by 5 or fewer individuals. The definitions for the terms "directly or indirectly" and "individual" are in Publication 542, Corporations. Generally, closely held corporations are subject to additional limitations in the tax treatment of items such as passive activity losses, at-risk rules, and compensation paid to a corporate officers.
Commodities trader:A person who is actively engaged in trad-ing section 1256 contracts and is registered with a domestic board of trade that is designated as a contract market by the Commodities Futures Trading Commission.
Commodity future:A contract made on a commodity exchange, calling for the sale of a com-modity at a future date for a fixed price.
CONDITIONAL SALES CONTRACT- the transfer of title to personal property conditional upon (after) the payment of the full purchase price to the seller.
Conversion transaction:Any transaction that you entered into after April 30, 1993, and that meets both of these tests. 1) Substantially all of your ex-pected return from the transaction is due to the time value of your net in-vestment. 2) The transaction is one of the following. a) A straddle, including any set of offsetting positions on stock. b) Any transaction in which you acquire property (whether or not actively traded) at substantially the same time that you contract to sell the same prop-erty or substantially identical property at a price set in the con-tract. c) Any other transaction that is marketed or sold as producing cap-ital gains from a trans-action described in (1).
Capitalized: Expended or treated as an item of a capital nature. A capitalized amount is not deductible as a current expense and must be included in the basis of property.
Circumstantial evidence: Details or facts which indirectly point to other facts.
Class life/lives: A number of years that establishes the property class and recovery period for most types of property under the General Depreciation System (GDS) and Alternative Depreciation System (ADS).
Clean-fuel vehicle: Clean-fuel vehicle property is made up of two kinds of property.
Clean-fuel vehicle refueling property: Clean-fuel vehicle refueling property includes any property (other than a building or its structural components) used to:
Commuting: Travel between a personal home and work or job site within the area of an individual's tax home.
Contract and Agreement - What might surprise some, is that either of these can be verbal or written. However, a written document will carry more credibility than a verbal agreement. It is always a much better business practice to require that all agreement be in a written document. You should always have both your CPA and your attorney read over the documents. The CPA and attorney compliment each other to make a team, one does not replace the other. In very broad terms for a contract to be valid, there should be at a minimum six (6) essential elements (Warning: some types of contracts will need to have other elements - for example a promissory must have a stated interest rate, a maturity date and other elements to be valid). Those six essential items are:
Corporation, C Corp. - This is an ordinary corporation. Many large business use this type. General Motors, Microsoft, and General Electric are a few examples. The number of stockholders can be as few as one. Therefore, even though you are the only owner, you may incorporate.
Corporation, S Corp. - This is an ordinary corporation. For protecting the owner from risks associated with the business, this is exactly the same as the "C Corporation". The S Corporation Election is used to eliminate the corporate income tax. The elimination of the federal income tax transfers the tax responsibility to the individual owner(s). There are rules that must be followed to qualify for the S Election. Very briefly, the number and the persons qualifying for S Corporation Shareholders is restricted by the federal tax laws. There are other factors to consider, but too voluminous to write about in a shrt definition.
Convention: A method established under the Modified Accelerated Cost Recovery System (MACRS) to determine the portion of the year to depreciate property both in the year the property is placed in service and in the year of disposition.
Calendar Year. To adopt a calendar tax year, you must maintain your books and records and report your income and expenses from January 1 through December 31 of each year.
Capital Budget. A plan for proposed expenditures for acquiring long-term assets and the means of financing these acquisitions. Lists future investment projects and includes a justification for each.
Car Card. An advertisement appearing as a card or poster in a vehicle of public conveyance such as a bus, subway, or train.
Carry-Over Merchandise. Unsold goods remaining from a previous selling season which are held for future sale.
Cash Discount. A reduction in sales or purchase price, allowed by a vendor, for payment before the due date of the bill. It is generally expressed as a percentage of the billed price. For example, a cash discount of"2/10 net 30" indicates a 2 percent price reduction given for payment within the first 10 days of a 30 day billing period.
Cash Receipts Report. A form used by salespeople to record money received from cash sales of merchandise at the close of each business day.
Catalog. A book or pamphlet listing merchandise for sale, usually with descriptive comments and illustrations.
Central Buying. The concentration of the authority and responsibility for merchandise selection and purchase for a chain of stores or the branch stores of a department store in the hands of the headquarters staff rather than in the individual units. The central buying function is generally located in the flagship store or the central market.
Cents-Off Coupon. A certificate entitling the customer to a reduced purchase price for the item being promoted. The product and the amount of the cash saving are specified in the certificate which is generally redeemable at the point of purchase. See also coupon.
Certification of Origin. A document attesting to the point of origin of a shipment.
Certification Mark. A label, seal or tag placed upon a product testifying to its quality, worth or origin.
Charge-Back. A retailer's invoice for claims against a vendor resulting from such items as damaged merchandise, cooperative advertising costs, adjustments, and the recovery of transportation charges for improperly routed merchandise.
Circular. Advertising literature in the form of printed booklets, often included with newspapers or delivered door-to-door.
Claim. (1) A transportation term referring to charges for damages incurred while goods were in the possession of the carrier. (2) A retailer's claims against a vendor. See Charge-Back.
Classification. The breaking down of merchandise into categories called classes, i.e., into groups of items similar in nature or in end use without regard for style, size, color, price, etc. These classes are developed in direct response to the needs expressed by customers and, as they are fundamental merchandising units, change little from year to year even though the actual merchandise within each classification will be in a constant state of flux. The purpose of classifications is to provide a basic statistical structure to facilitate merchandise control.
Clearance Markdown. A reduction in retail price for the purpose of stimulating sales of slow-moving merchandise. Unlike the promotional markdown, the clearance markdown is a defensive strategy calculated to reduce losses.
Closed-Loop System. A computerized method of inventory control in which merchandise data is recorded at the point of sale for use in ordering and reordering. The item is removed from the inventory memory bank at the time of sale.
Closing Physical Inventory. The dollar value of stock remaining at the close of the accounting period as determined by an actual count of the stock.
Coding. A method of identifying merchandise numerically or alphabetically on price tickets.
Collection System. The established procedure used by retailers to encourage customers to pay debts, especially delinquent accounts. The procedure includes several levels of increasing intensity, such as impersonal routine billing, impersonal appeals, personalized appeals, and drastic legal action.
Commission Buying Office. An independent resident buying office which receives its compensation from manufacturers as a percentage of orders placed with retailers. Generally deals with small retailers and provides few or no services other than the procurement of goods. The commission office may represent many manufacturers and gives the retailer the advantage of choosing from a large assortment of merchandise without paying a fee. Also known as a merchandise broker or manufacturer's representative. See also Commission House, Broker, and Manufacturer's Agent.
Commission House. A middleman establishment supplying large retailers, especially supplying large retailers, especially in the food trade. Generally exercises physical control over and negotiates the sale of the goods handled. Enjoys broad powers as to prices, methods, and terms of sale, although still subject to the instructions of the principal. Operates most often in the central market. May also arrange delivery, extend credit, make collections, etc. for the principal. See also Broker.
Company Introduction. A planned, formal orientation program to inform the new employee about the firm he or she is joining. The information imprted includes details about the firm's history, development, organization, policies and regulations as well as facts about the operation of the company (number and location of stores, warehouses and manufacturing facilities, if any). Also includes terms of employment, disciplinary policies and procedures, company benefits and advancement opportunities. The orientation is often accompanied by an orientation booklet.
Comparative Balance Sheet . Two or more balance sheets for the same company for different times displayed side by side to facilitate the observation of similarities or differences, growth or decline.
Comparison Department . The department of a retail store responsible for checking similarities or differences in prices, styles, quality, service, etc. between the store and its competitors.
Cooperative Advertising. (1) Vertical Cooperative Advertising--An advertising strategy in which a retailer and a manufacturer or wholesaler share the cost of advertising. (2) Horizontal Cooperative Advertising--An advertising strategy in which two or more retailers share in the cost of advertising.
Cooperative Buying. Consolidation of orders by a number of stores, generally to take advantage of quantity discounts, etc. The cooperating stores may be independent or members of a consolidated group. The term includes group, committee and central buying, buying clubs, cooperative wholesalers, wholesaler-retailer cooperative groups, and manufacturers' cooperative retail groups. Also known as affiliated buying.
Cost Complement. The average relationship that exists between the cost of
goods and retail value of the goods handled during an accounting period. The dollar value
of the inventory at cost is divided by the dollar value of the inventory at retail.
Cost complement = $ Cost of goods / $ Retail value of goods
Cost Department. (1) An operation such as a restaurant, barbershop, fur storage vault or beauty parlor in a retail store which maintains no inventory at retail and so operates on the cost method of accounting rather than the retail method of inventory for determining profits and losses. (2) A manufacturing or processing department within a retail store that is operated on the cost method of accounting.
Cost Method of Inventory. A technique for determining the cost of inventory on hand based on the cost price of goods. The actual cost of the goods is masked on each price ticket in code. Inventory is taken by actual physical count and recorded at cost prices, with an allowance made for depreciation. This method is used primarily in small stores and for high-priced items. The ending inventory at cost becomes the beginning inventory at cost for the next accounting period. Purchases are also recorded at cost. This method may be used to calculate the cost of goods sold and the gross margin of the store. See also retail method of inventory.
Cost of Goods Purchased. The net price paid for merchandise by the retailer, plus the price paid for transportation and delivery to the retail store.
Cost of Goods Sold. The price paid for any merchandise required to obtain the sales of the period. It generally includes all charges (invoice costs) for goods on hand, goods on order, freight-in charges, and workroom and alteration costs. The cost of goods sold may be calculated either before or after cash discounts have been deducted or alteration and workroom costs added. The cost of goods sold may also be determined by subtracting the closing inventory at cost from the opening inventory plus purchases at cost.
+Opening inventory (at cost)
+New purchase for period (at cost)
-Closing inventory (at cost)
=Cost of goods sold
Coupon. A certificate, card, or other printed offer distributed to customers and redeemable for goods or services specified at a reduced price or free. Used as a sales promotion technique. May come from a manufacturer or vendor, in which case the coupon is redeemable at a wide variety of retailers, or from a retailer, in which case they may be used only in that store. See also cents-off coupon.
Coupon Account. An arrangement by which the customer purchases coupons for cash and exchanges them for goods in the store.
Couturier (Couturiere). The designer of women's fashion apparel, especially one in the business of making and selling the clothes he or she has designed. Applies particularly to French, high-fashion designers. Couturiere is the feminine form.
Cumulative Markon. When expressed in dollars, cumulative markon is the difference between the cost price of merchandise and the highest retail price at which it is offered for sale. The concept cumulative markon is generally applied to classifications, departments, or the entire store rather than to individual items and is thus an average figure useful in setting price policy. See also initial markup.
Cumulative Markup. For a specified period, the difference between the total cost of merchandise and the total original retail value of that merchandise. Included in the total are all additional markups for the period. Sometimes called cumulative markon.
Cumulative Quantity Discount. A discount based on all the purchases made during a specified period from a vendor or wholesaler. Also called a deferred or patronage discount.
Cycle Billing. A procedure by which customers receive monthly invoices on a rotating alphabetical basis throughout the month rather than all the first of the month.
Declining balance method: An accelerated method to depreciate property. The General Depreciation System (GDS) of MACRS uses the 150% and 200% declining balance methods for certain types of property. A depreciation rate (percentage) is determined by dividing the declining balance percentage by the recovery period for the property.
Disposed: Permanently withdrawn from use in a trade or business or from the production of income.
Documentary evidence: Written records which establish certain facts.
Demand loan:A loan payable in full at any time upon demand by the lender.
Dividend:A distribution of money or other property made by a corporation to its share-holders out of its earnings and profits.
Deferred Billing. Payment due date is moved forward a specified period of time under this billing system to provide an added incentive to purchase.
Demurrage. In transportation, a fee payable to the owner of a vessel, or truck, for failure to unload freight in time allowed under an agreement.
Designer. A person who makes original sketches and patterns for apparel, scenery, automobiles, packaging and a wide variety of other products. Fashion or apparel designers create ideas for new styles of clothing and accessories. See also couturier (couturiere).
Detailer. One who sets up vendor displays in retail stores and who maintains inventory of the product.
Direct Marketing. A term that embraces direct mail, mail order, and direct response. Direct marketing is a process by which a message is conveyed directly to the customer and which is designed to elicit a response on his part.
Discount Loading. An accounting practice in which all invoice prices are treated as though they contained a cash discount. Result is a higher cost and higher retail price.
Distribution Center. A facility to which goods are shipped for the purpose of short-term storage, sorting, repacking, and finally, shipment to individual stores.
Diversionary Pricing. A deceptive practice in retailing in which a lower than market level price for a small number of items is widely promoted to create the impression that all merchandise is comparably priced.
Drop Shipment. Merchandise which is delivered by vendor to individual branch stores rather than to a warehouse or other intermediate location.
Due Bill. A certificate issued by a store redeemable for merchandise of a specified dollar value. Due bills are often issued to customers in lieu of cash refunds for merchandise returned. Also called store credit, merchandise certificate credit voucher, store money, or scrip coupon.
Dun. To persistently demand payment of a delinquent account.
Employee Discount. A reduction in retail price granted to a store's own employees (and sometimes their dependents) when purchasing goods at the store.
Employee Handbook. A manual of facts and instructions provided for the employees of a retail firm or other business. May include the history and philosophy of the firm, regulations, policies, procedures, benefits, dress code, etc. Often used in the orientation of new employees.
Expense Center. Any area of a store to which particular, controllable costs may be assigned and which becomes responsible for those costs.
Exchange: To barter, swap, part with, give, or transfer property for other property or services.
Equity option:Any option: 1) To buy or sell stock, or 2) That is valued directly or indirectly by reference to any stock, group of stocks, or stock index.
Factoring. The selling of a retailer's accounts receivable to another party, or factor. The factor assumes the loss resulting from any uncollected accounts and receives a relatively high commission from the retailer. Factoring is used in other industries as well, particularly in the apparel manufacturing industry.
Fashion Coordinator. At the retail level, a fashion coordinator may be responsible for organizing in-store fashion promotions, doing trend research for various fashion departments, etc. Fashion coordinators usually do not have direct merchandising responsibilities. In large organizations often works under the fashion director.
Fidelity Bond. An insurance contract protecting a business against losses resulting from any dishonest acts of employees involving money, merchandise, or property.
Fixed Period System. A system for reordering merchandise in which orders are submitted to the vendor at regular predetermined intervals regardless of inventory.
Fixed Quantity System. A system for reordering merchandise in which orders are submitted to the vendor when stock levels reach a predetermined low level or cushion regardless of when the last order was submitted.
Fixtures. Tables, counters, racks, etc., used by a store to stock and display its merchandise.
Fixturing. The selection and arrangement or store fixtures such as racks and counters for the purposes of display and costumer convenience, especially in the case of self-service stores.
Flagship Store. The main store of a large retailing firm having a number of branches. The flagship store is usually the original downturn store and often houses the executive, merchandising, and promotional personnel responsible for the centralized operation of the entire operation.
Floor Allowance. A discount allowed a customer in the selling department or at the point of sale when purchasing a soiled or otherwise defective item.
Floor Plan Financing. A form of financing commonly used by retailers when purchasing big ticket items such as appliances, automobiles, electronics, boats, etc. in which the retailer borrows money from a lending institution and, in turn, pays the vendor (a manufacturer or distributor) for the goods at time of receipt. Proceeds from sales are used to repay the lender.
Floor Stock. Back-up merchandise which is actually on the selling floor and accessible to customers.
Free on Board (FOB). A term used in shipping agreements meaning that the buyer of goods pays the freight charges from the FOB point (the point of origin), e.g., the factory, port-of-entry, etc. Title to merchandise passes to buyer at FOB point.
Foreign Buying Office. An office situated abroad to facilitate buying merchandise from foreign vendors.
Foreign Valuation. The value of imported goods expressed in terms of the currency of the country of origin for purposes of duty.
Free Goods. Additional merchandise included with a retailer's order at no additional charge. Given by the vendor in lieu of a special discount and in appreciation for the size of the order.
Freight Allowance. A transportation expense paid in part by the manufacturer or other supplier when shipping merchandise to a retail store. Considered a means of equalizing transportation costs for distant retailers. The allowance may be based on the cost of the merchandise, or the quantity of the merchandise ordered.
Family Limited Partnership - This is structurally and legally identical to the limited partnership form. The difference is that only members of the family are included in the partnership. The purposes of setting up a family limited partnership are to provide for a methodical and low cost of transferring the owner's assets to heirs. This is possible because the annual exclusion is available for gifting the partnership units to the heirs, discounts are allowed for non-controlling shares, over a period of several years there are some incoem tax advantages if the heirs are in a lower tax bracket than the owner and there may be protection from actions against the owner for those assets held within the Family Limited Partnership. The protection provided for risks is to be considered on a case by case basis.
Fair market value: The price at which property would change hands between a willing buyer and a willing seller, both having reasonable knowledge of the relevant facts. ~~ Fair market value. Fair market value is the price at which the property would change hands between a buyer and a seller when both have reasonable knowledge of all the necessary facts and neither has to buy or sell.
Fiscal Year. If you adopt a fiscal year, you must maintain your books and records and report your income and expenses using the same tax year. A fiscal year is any year other than a December year end.
Forgone interest:The amount of interest that would be payable for any period if interest accrued at the applicable federal rate and was payable annually on De-cember 31, minus any interest payable on the loan for that pe-riod.
Forward contract:A contract to deliver a substantially fixed amount of property (including cash) for a substantially fixed price.
Futures contract:An exchange-traded contract to buy or sell a specified commodity or financial instrument at a speci-fied price at a specified future date. See also Commodity fu-ture.
Fair market value (FMV): The price which property brings when it is offered for sale by one who is willing but not obligated to sell, and is bought by one who is willing or desires to buy but is not compelled to do so.
Fiduciary: The one who acts on behalf of another as a guardian, trustee, executor, administrator, receiver, or conservator.
Fungible commodity: A commodity of a nature that one part may be used in place of another part.
Limited Liability Company - Popularly called the LLC, this is a form of buisiness which for federal income tax purposes is treated just like the partnership. The partnership tax forms are used for filing, and the individual owners (members) are personally for the income taxes.
Goodwill: An intangible property such as the advantage or benefit received in property beyond its mere value. It is not confined to a name but can also be attached to a particular area where business is transacted, to a list of customers, or to other elements of value in business as a going concern.
Grantor: The one who transfers property to another.
Gift loan: Any below-market loan where the forgone interest is in the nature of a gift.
Independent Contractor: The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done. Income earned by an independent contractor is SE income. (Refer to Self-employed, Sole Proprietor and IRS Form SS-8)
Interest: Compensation for the use or forbearance of money.
Inventory: Inventory is usually comprised of:
- Items for sale to customers
- Raw materials,
- Work in process,
- Finished products,
- Supplies that physically become a part of the item intended for sale.
Investment interest: The interest you paid or accrued on money you borrowed that is allocable to property held for in-vestment.
Limited partner:A partner whose participation in partner-ship activities is restricted, and whose personal liability for part-nership debts is limited to the amount of money or other prop-erty that he or she contributed or may have to contribute.
Listed option:Any option that is traded on, or subject to the rules of, a qualified board or ex-change.
Listed property: Passenger automobiles, any other property used for transportation, property of a type generally used for entertainment, recreation or amusement, computers and their peripheral equipment (unless used only at a regular business establishment and owned or leased by the person operating the establishment), and cellular telephones or similar telecommunications equipment.
Mutual Fund - A mutual fund allows the average person and average wealth person to obtain the expertise of top notch financial advisers and provides for diversification and the ability to purchase securities in large blocks - just like the affluent.
Partnership, General - The general partnership offers a method for several owners to bring various resources to a business venture. All partners are jointly and severally responsible for the debts and all risks of the business. Although the partnerhsip will file an annual tax return, the individuals are responsible for the taxes. Taxes, include income, payroll, sales, unemployment, real property, personal property and any other taxes of the busijness.
Partnership, Limited -
Registered Limited Liability Company
Marked to market rule:The treatment of each section 1256 contract (defined later) held by a taxpayer at the close of the year as if it were sold for its fair mar-ket value on the last business day of the year.
Market discount:The stated redemption price of a bond at maturity minus your basis in the bond immediately after you ac-quire it. Market discount arises when the value of a debt obli-gation decreases after its issue date.
Market discount bond:Any bond having market discount except: 1) Short-term obligations with fixed maturity dates of up to 1 year from the date of is-sue, 2) Tax-exempt obligations that you bought before May 1, 1993, 3) U.S. savings bonds, and 4) Certain installment obli-gations.
Nominee:A person who re-ceives, in his or her name, in-come that actually belongs to someone else.
Nonequity option:Any listed option that is not an equity op-tion, such as debt options, com-modity futures options, currency options, and broad-based stock index options.
Nonresidential real property: Most real property other than residential rental property.
Nontaxable exchange: An exchange of property in which any gain or loss realized is not recognized (included in or deducted from income) for tax purposes. This usually involves exchanges of like-kind property.
Options dealer:Any person registered with an appropriate national securities exchange as a market maker or specialist in listed options.
Original issue discount (OID): The amount by which the stated redemption price at maturity of a debt instrument is more than its issue price.
Passive activity:An activity in-volving the conduct of a trade or business in which you do not materially participate and any rental activity. However, the rental of real estate is not a passive activity if both of the fol-lowing are true. 1) More than one-half of the personal services you per-form during the year in all trades or businesses are performed in real property trades or businesses in which you materially partic-ipate. 2) You perform more than 750 hours of services during the year in real property trades or businesses in which you materially participate.
Personal Holding Company:
A personal holding company is defined in Internal Revenue Code section 542. Basically, a corporation is a personal holding company if both of the following requirements are met:
Personal Service Corporation: A personal service corporation is a corporation where the main work of the company is to perform services in the fields of health, law, engineering, architecture, accounting, actuarial science, the performing arts, or consulting. Examples may be law firms and medical clinics. Also, substantially all of the stock is owned by employees, retired employees, or their estates.
Portfolio income:Gross in-come from interest, dividends, annuities, or royalties that is not derived in the ordinary course of a trade or business. It includes gains from the sale or trade of property (other than an interest in a passive activity) producing portfolio income or held for in-vestment.
Premium:The amount by which your cost or other basis in a bond right after you get it is more than the total of all amounts payable on the bond after you get it (other than payments of qualified stated interest).
Private activity bond:A bond that is part of a state or local government bond issue of which: 1) More than 10% of the pro-ceeds are to be used for a private business use, and 2) More than 10% of the pay-ment of the principal or in-terest is: a) Secured by an interest in property to be used for a private business use (or payments for the property), or b) Derived from pay-ments for property (or borrowed money) used for a private business use.
Put:An option that entitles the purchaser to sell, at any time before a specified future date, property such as a stated num-ber of shares of stock at a spec-ified price.
Placed in service: Ready and available for a specific use whether in a trade or business, the production of income, a tax-exempt activity, or a personal activity.
Property class: A category for property under MACRS. It generally determines the depreciation method, recovery period, and convention.
Recovery period: The number of years over which the basis (cost) of an item of property is recovered.
Refueling property: See Clean-fuel vehicle refueling property.
Remainder interest: That part of an estate which is left after all of the other provisions of a will have been satisfied.
Residential rental property: Real property, generally buildings or structures, if 80% or more of its annual gross rental income is from dwelling units.
Real estate mortgage investment conduit (REMIC): An entity that is formed for the purpose of holding a fixed pool of mort-gages secured by interests in real property, with multiple classes of interests held by in-vestors. These interests may be either regular or residual.
Regulated futures contract: A section 1256 contract that: 1) Provides that amounts that must be deposited to, or may be withdrawn from, your margin account de-pend on daily market con-ditions (a system of marking to market), and 2) Is traded on, or subject to the rules of, a qualified board of exchange, such as a domestic board of trade designated as a contract market by the Commodity Futures Trading Commis-sion or any board of trade or exchange approved by the Secretary of the Treas-ury.
Restricted stock: Stock you get for services you perform that is nontransferable and is subject to a substantial risk of forfeiture.
Section 1256 contract: Any: 1) Regulated futures contract, 2) Foreign currency contract as defined in chapter 4 under Section 1256 Contracts Marked to Market, 3) Nonequity option, or 4) Dealer equity option.
Self-employment: You are self-employed if you carry on a trade or a business as a sole proprietor, an independent contractor, a member of a partnership, or are otherwise in business for yourself. (Refer to Self-employed, Sole Proprietor, Independent Contractor and IRS Form SS-8)
Short sale:The sale of property that you generally do not own. You borrow the property to deliver to a buyer and, at a later date, you buy substantially identical property and deliver it to the lender.
Sole Proprietorship - This form of business is one in which there can be only one owner. The sole person runs and manages the business. The sole owner combines the business income and expenses on his or her personal federal and state income tax returns. The tax is computed on the individual's income tax return. There is no separate return and no separate. tax. In addition, the owner is personally responsible for all debts, expenses and other business transaction. The individuals otehr assets are exposed to the business responsibilities. (Refer to Self-employed, Sole Proprietor, Independent Contractor and IRS Form SS-8)
Straddle: Generally, a set of offsetting positions on personal property. A straddle may consist of a security and a written option to buy and a purchased option to sell on the same number of shares of the security, with the same exercise price and period.
Stripped preferred stock: Stock that meets the following tests. 1) There has been a sepa-ration in ownership between the stock and any dividend on the stock that has not become payable. 2) The stock: a) Is limited and preferred as to dividends, b) Does not participate in corporate growth to any significant extent, and c) Has a fixed redemption price.
Salvage value: An estimated value of property at the end of its useful life. Not used under MACRS.
Section 1245 property: Property that is or has been subject to an allowance for depreciation or amortization. Section 1245 property includes personal property, single purpose agricultural and horticultural structures, storage facilities used in connection with the distribution of petroleum or primary products of petroleum, and railroad grading or tunnel bores.
Section 1250 property: Real property (other than section 1245 property) which is or has been subject to an allowance for depreciation.
Standard mileage rate: The established amount for optional use in determining a tax deduction for automobiles instead of deducting depreciation and actual operating expenses.
Straight line method: A way to figure depreciation for property that ratably deducts the same amount for each year in the recovery period. The rate (in percentage terms) is determined by dividing 1 by the number of years in the recovery period.
Structural components: Parts that together form an entire structure, such as a building. The term includes those parts of a building such as walls, partitions, floors, and ceilings, as well as any permanent coverings such as paneling or tiling, windows and doors, and all components of a central air conditioning or heating system including motors, compressors, pipes and ducts. It also includes plumbing fixtures such as sinks, bathtubs, electrical wiring and lighting fixtures, and other parts that form the structure.
Taxable exchange: An exchange of property in which the gain or loss is recognized (included in or deducted from income) for tax purposes.
Tax-exempt: Not subject to tax.
Term interest: A life interest in property, an interest in property for a term of years, or an income interest in a trust. It generally refers to a present or future interest in income from property or the right to use property which terminates or fails upon the lapse of time, the occurrence of an event or the failure of an event to occur.
Term loan: Any loan that is not a demand loan.
Unadjusted depreciable basis: The basis of an item of property for purposes of figuring gain on a sale without taking into account any depreciation taken in earlier years but with adjustments for amortization, the section 179 deduction, any deduction claimed for clean-fuel vehicles or clean-fuel vehicle refueling property, and any electric vehicle credit.
Unit-of-production method: A way to figure depreciation for certain property. It is determined by estimating the number of units that can be produced before the property is worn out. For example, if it is estimated that a machine will produce 1000 units before its useful life ends, and actually produces 100 units in a year, the percentage to figure depreciation for that year is 10% of the machine's cost less its salvage value.
Useful life: An estimate of how long an item of property can be expected to be usable in trade or business or to produce income. Under MACRS, you recover the cost of property over a set recovery period. The recovery period is based on the property class to which your property is assigned. The class your property is assigned to is generally determined by its class life. The class life for most property is established and listed in Appendix B.
Wash sale: A sale of stock or securities at a loss within 30 days before or after you buy or acquire in a fully taxable trade, or acquire a contract or option to buy, substantially identical stock or securities.
95.
Gift Certificate. A certificate purchasable in any dollar amount which may be given as a gift and which is redeemable in merchandise at the store of purchase.
96.
Gondola. A counter, often two-sided, having shelves at the top and storage space at the bottom. Primary function is to display merchandise and provide room for back-up stock.
97.
Good Will. The intangible favor with which a business is viewed by its customers based on the reputation and performance of that business. Good will is distinct from the tangible assets of the business even though it has a dollar value.
98.
Gross Leasable Area (GLA). The standard unit of measure used by the shopping center industry. GLA is the total floor area designed for tenant occupancy and exclusive use, including basements, mezzanines, and upper floors. It is measured from the center line of joint partitions and from outside wall faces. GLA is that area on which tenants pay rent.
99.
HVAC. Initialism for heating, ventilation, and air conditioning.
100.
Incentive Buying. The practice by which the retail buyer places orders early in the season, stimulated by the discounts offered by manufacturers for the early orders.
101.
Initial Markup. When expressed in dollars initial markup is the difference between the cost price of merchandise and its first retail price. When expressed as a percentage it is computed as the difference between cost price and first retail price divided by retail price. In both cases markdown and stock shortages are not counted in the computation. Initial markup is sometimes referred to as original markup, initial markon, or markon.
102.
Initial Retail Price. The cost of merchandise plus the amount of initial markup.
103.
Intermediate Markdown. A reduction in retail price made prior to the current, and usually final, reduction being advertised. Current retail price may have been reached in stages, i.e., via several intermediate markdowns.
104.
Intransit. A transition state in which merchandise has left its point of origin and has not yet arrived at its destination.
105.
Inventory. Merchandise on hand and ready to sell. Inventory and stock are terms often used synonymously.
106.
Invisible Shrinkage. Stock shortages due to shoplifting, employee theft, losses due to clerical error, etc. which are undiscovered until a physical inventory is made.
107.
Invoice. A bill, or statement, usually itemized, which is enclosed with a shipment of merchandise or mailed later by the seller. Information generally includes quantities shipped, prices of goods, terms of sale, discount, method of shipment, and other particulars including total amount due seller.
108.
Invoice Apron. An attachment to an invoice form prepared by either the shipper of goods or by the receiving party on which relevant notations may be made. For example, on the receiving end an apron may be prepared on which quantities received are noted so that goods may be passed through to the selling floor before the seller's invoice arrives by mail.
109.
Invoice Cut-Off. A procedure in making a physical inventory in which, after a specified date, invoiced merchandise will not be added in to the total count.
110.
Kickback. In vendor/vendee relations the kickback is generally in the form of a money payment to the retail buyer by the vendor as a recompense for the buyer's patronage.
111.
Last In, First Out (LIFO). A method of inventory valuation which assumes that merchandise most recently acquired is disposed of first. What remains, therefore, at the end of the inventory period, is a composite of the oldest merchandise costs.
112.
Layaway. A retail deferred payment purchase arrangement in which the store sets aside a customer's merchandise (on which he or she may or may not have made a deposit) until the customer has fully paid for it. If purchase is not completed, deposit may or may not be refunded.
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Leased Department. A department or areas within a store operated by an outside organization although often not so identified to the customer. Generally the store supplies the space and those essential services such as lighting, security, etc. in return for a flat fee or for a percentage of the leased department's sales. Shoes, jewelry repair, photo services, etc. are leased departments frequently found in department or discount stores (sometimes called licensed departments in discount stores).
114.
Letter of Credit. A document obtained by a buyer of goods from a bank which is evidence of the buyer's credit standing. The letter of credit is presented to the seller of the goods by the buyer, the seller delivers the goods and collects his money from the bank which, in turn, collects from the buyer. The letter of credit is useful in international trade where the buyer has been unable to establish a line of credit with vendors.
115.
Licensing. An agreement between the creator of a product or line of products and a manufacturer in which the creator gives the manufacturer permission to use his name in the marketing of a product in return for a royalty, usually computed as a percentage of sales.
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List Price. The list price may be the manufacturer's price to the retailer as represented on a list or in a catalog, but more often list price is meant to indicate the retail price as suggested (and sometimes advertised) by the manufacturer.
117.
Loading of Cash Discount. A retail practice in which the vendor's invoice amount is increased (loaded) to compensate for a lower than expected cash discount. The increased amount is charged to the department buying the merchandise thus, on paper, creating the illusion that the goods cost more than they really did. The object of this practice is: (1) to induce buyers to gain the largest discount possible to avoid the penalty of increased invoice prices, and (2) to gain a higher markup on the merchandise.
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Mail Order Retailing. A form of selling in which personal contact and store operations have been eliminated. The retailer contacts potential customers through the use of direct mail, catalogs, television, radio, magazines, newspapers, etc. Merchandise is described in words and pictures, customers order by telephone or through the mail, and orders are filled by the seller through the mail or via parcel services.
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Manufacturer's Agent. A middleman performing many of the functions of the selling agent, but who may sell the products of a number of non-competing client manufacturers in a specified territory. Manufacturer's agents have limited control over prices and terms of credit and act as salespersons calling on industrial customers and retailers. Also known as a manufacturer's representative.
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Markdown. A reduction from original or previous retail price, generally as a result of reduced demand for the item in question (termed a clearance markdown) or in an attempt to increase store traffic (termed a promotional markdown).
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Markdown Money. A money payment by a vendor to a retailer to compensate the retailer for losses incurred because of the need to reduce the selling price of the vendor's merchandise.
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Markon. A term often used synonymously with markup, but certain distinctions can be made between the two. Markon is generally represented as the difference between the cost price of merchandise and its retail price expressed as a percentage of cost added to cost to reach the final retail price. Markon may also be used to describe the total amount added to the cost of all merchandise in a department, rather than to the amount added to individual items which is more commonly referred to as markup. Finally, markon is a term more frequently found at the manufacturing level rather than the retail level of the distribution chain. See also markup.
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Markup. The difference between cost price of merchandise and its retail price. Markup may be expressed in dollars or as a percentage. If stated as a percentage it may be based on either cost price or retail price. Markup is sometimes used synonymously with the term markon, but there are certain distinctions which can be made between the two. Markon is computed as follows:
Retail price -
Cost price -
Markon %
Cost price
Markup is computed as follows:
Markup is also a term most commonly applied to the amount added to cost price to reach a retail price for individual items, while markon more often refers to the total amount added to the cost of all the merchandise in a department. Finally, markon is a term more frequently found at the manufacturing level and markup at the merchandising/retail level of the distribution chain. See also markon.
Markup Cancellation. A reduction in the price of an item after it has been subject to additional markup. Markup cancellation never, by definition, exceeds the amount of additional markup applied to an item.
Memorandum Buying. An arrangement between vendor and retailer in which the retailer buys merchandise from the vendor and, while taking title to the goods, retains the right to return to the vendor merchandise unsold over a specified time period. Retailer may also have the right to pay for goods as they are sold, rather than on receipt, for an indefinite time period.
Merchandise. (1) Usually manufactured goods, but sometimes applied to commodities. (2) To merchandise is to: (a) buy and sell, carry on trade, or (b) to promote one's goods, as in "to merchandise a line."
Merchandising. The American Marketing Association definition: "The planning involved in marketing the right merchandise at the right place at the right time in the right quantities at the right price." More specifically, it is the buying and selling of appropriate goods coupled with the accurate targeting of consumers for the ultimate purpose of making a profit.
Missionary Salesperson. Employees of manufacturers who assist retailers in arranging displays and other promotional materials supplied by the manufacturer for use in the store. Missionary salespeople may also demonstrate the manufacturer's products in the store and assist store employees in effectively presenting the product to the customer. Ordinarily missionary salespeople do not sell directly to store customers.
Model Stock Plan. One method for developing the assortment plan, the model stock plan, although it may include some staples, is largely composed of shopping and specialty merchandise. Because of this the model stock plan is less specific than the basic stock list despite the fact that it includes certain information, such as classification, cost, price, color, size, retail selling price, etc. The inclusion of fashion and seasonal merchandise in the model stock plan adds to it an element of unpredictability.
Near Pack Premium. A manufacturer's promotion that offers a completely different product free with one purchase of the product being promoted. The premium is displayed near the basic product but in a display of its own.
Net Lease. Under a net lease a retailer must assume such expenses as heating, maintenance, insurance, etc., as well as basic rent charges.
Nonperpetual Inventory. An inventory control system in which a physical count must be made to determine how much stock is on hand. See also perpetual inventory.
Omnibus Cooperative Advertising. A full-page ad placed by a retailer and bearing the name of the retailer. It consists, however, of mats supplied by various vendors of different products. The retailer bills each vendor a prorated share of the cost of the ad.
On-Order. Merchandise that has been ordered by the buyer but not yet received by the store is said to be "on order." This represents a commitment of the planned purchase figure and affects the open-to-buy.
Open-To-Buy (OTB). The amount (expressed in dollars or units) a buyer is permitted to order for a specified period of time. In terms of dollars, a department's open-to-buy would be the total amount budgeted less the value of goods yet to be delivered in the specified period.
Open-To-Buy Report. A document used to calculate the open-to-buy, this report summarizes the existing or projected relationship between inventory and sales. It is generally prepared on a weekly basis for the department buyer. The open-to-buy report indicates the amount of merchandise on hand at the beginning of the period, the amount received, the amount sold, markdowns, current inventory, and merchandise on order.
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Optical Code Reader. A minicomputer used to record, calculate, store, and transmit coded data to the main computer by means of a wand or light pen. The wand focuses a beam of light on a bar-coded surface and senses reflections from it. The reader may be stationary and connected to a cathode ray tube (CRT) display device, or portable. The portable reader is battery operated and contains a wand and either a keyboard or a scanboard for data input. Optical code readers may also be called terminals or scanners.
138.
Order Form. A blank used by buyers to place their official orders with a vendor. The order form may be previously prepared or printed with information about the product or service being offered for sale. See also preprinted order form.
139.
Order Register. A store's official record of orders placed with vendors. Includes the date of the order, vendor's name, amount of order, month shipment is due, etc.
140.
Original Retail. The first price set by the retailer for an item of merchandise, prior to discounts, markdowns, and other reductions.
141.
Periodic Actual Count. A system of unit inventory control in which the merchandise on hand is counted on a systematic, regular basis.
142.
Perpetual Inventory. A system of dollar inventory control in which daily sales, discounts, and markdowns are deducted from the book inventory on a continuous basis. It provides a picture of the inventory which agrees with the actual stock on hand, provided no shortages have occurred. The movement of goods into and out of stock are continuously recorded. Also called "book inventory," this system is used in the retail method of accounting.
143.
Perpetual Unit Control. A system of unit inventory control in which all factors affecting the number of units on hand (such as purchase orders, receipts of merchandise, and sales for individual styles) are recorded on a continuing basis as they occur.
144.
Physical Inventory. The dollar value at retail of merchandise on hand during inventory. Includes only the stock actually present in the department or store. The physical inventory usually also includes the unit count, quantity, weight or measure as well as the dollar value.
145.
Planned Markdown. A markdown anticipated by the store's buyer for a particular selling season. Since it is expected, it is taken into account in sales projections for that season. Planned markdowns are often used to generate store traffic.
Planogram. Instructions sent to branch stores by the parent organization detailing how much merchandise is to be stocked and how it is to be displayed. In some organizations planograms are advisory, in others, conformance to the plan is mandatory.
Point of Sale (POS). (1) That section of the store or department where the sale is consummated, i.e., where the customer pays for and receives the merchandise. This is often the location of point-of-purchase displays and other promotions. Also called "point-of-purchase." (2) A register-based data collection system used by retailers.
Point of Sale (POS) Perpetual Inventory Control System. An automated retail system in which the store cash registers are linked to computer processing systems. For example, in the National Cash Register (NCR) 280 Retail System, the automated equipment handles marking, checkout and recording data functions. Merchandise is ticketed with colored bar code tags which are read with wand readers at the check-out counter. The computer accumulates sales transaction information on magnetic tape for daily input into the computer memory bank or storage system.
Point of Sale Terminal. A cash register or terminal linked to a computer. The register controls and records all sales (cash, charge, COD, layaway, etc.) at the point of sale. The terminal issues sales checks, prints transaction records, and feeds information about each transaction into the data bank of the computer. Also called an electronic cash register (ECR) or shortened to "point-of-sale (p.o.s.)" in common usage. The terminal is part of a point of sale (POS) perpetual inventory control system.
Prebuying Process. The activities of the buyer before he/she actually goes into the market to buy for the store. Prebuying includes planning, budgeting, shopping the competition, knowledge of customers, vendors, and store policies, etc.
Preprint. A copy of an advertisement intended to be run in a print medium (newspaper or magazine, etc.) which is distributed to customers and/or resources as a flyer prior to publication.
Preprinted Order Form. A vendor's order form on which are listed the products carried by the vendor. Includes check-off spaces for entering quantity desired, unit price, and total price.
Price Change Form. A record used for reporting any raising or lowering of the retail price of merchandise in stock. For example, additional markups, markup cancellations, and markdowns would all be recorded on price change forms.
Price Discrimination. The sale of goods by vendors to competing retailers at different prices under similar conditions of sale. If no saving to the seller can be demonstrated, or if the sale tends to create a monopoly or restrain trade, this practice is outlawed by the Robinson-Patman Act. See also resale price maintenance.
Price File. A computer memory bank used with the universal product code (UPC). It matched the store prices to the item and is central to the effectiveness of UPC operations in the store.
Pricing. Any of a variety of methods used by retail merchants to determine the prices at which to sell their merchandise. These methods include the full cost approach to pricing, flexible markup pricing, going rate pricing, gross margin pricing, and suggested pricing.
Prior Stock Report. A report prepared by the retailer which summarizes quantitative information about all stock on hand remaining from the previous season.
Private Brand. A brand developed, owned, and controlled by the retailer or other middleman. This merchandise is generally lower in cost than other brands. The merchant becomes both the producer and the marketer so the manufacturer's only responsibility is to make the merchandise according to the merchant's specifications. Also called a distributor brand, dealer brand, reseller brand, middleman brand, and private distributor brand.
Promotional Markdowns. A reduction in retail price for the purpose of stimulating store traffic. Unless clearance markdowns, promotional markdowns are regarded as part of the store's offensive strategy calculated to increase sales.
Promotional Stock. Goods offered for sale to the consumer at an unusually low price so as to generate volume sales and store traffic. The item is generally a special purchase from a vendor and may be advertised as such.
Pull Date. In food retailing, the date on the package which indicates when a product should be removed from the shelves due to loss of freshness.
Purchase Journal. A report that includes the charge to a department or classification for merchandise received, all invoices for the merchandise, transfers of merchandise, returns and claims against vendors, short shipments, lost merchandise, etc. Prepared on a monthly or semi-monthly basis.
Purchase Order. A written document, made out by the buyer, authorizing a seller to deliver goods at a specified price. Payment to be made later. The purchase order becomes a contract upon its acceptance by the vendor.
Push Money. Bonus money paid by a vendor or a retailer to sales people for selling specially designated merchandise. Some push money is in the form of prizes such as appliances or vacation trips.
Rack. A floor stand used as an interior display for holding and/or showing merchandise. Utilizes shelves, hooks, or pockets.
Rack Jobber. A wholesaler that sells specialized merchandise, especially to supermarkets and other self-service retailers. Provides, sets up, and maintains the displays of this merchandise and the requisite fixtures. Usually paid only for goods sold, a percentage of which goes to the retail outlet.
Rebate. (1) A reduction in price or partial refund on the price paid for merchandise given by the vendor to the retailer (generally for the size of the order), or by the vendor to the consumer (as a promotional device). In either case, its purpose is to encourage sales. (2) A synonym for patronage dividend.
Rebuyer. A person, usually in a large retail organization, who has the responsibility for buying additional merchandise. Generally the buyer will have placed the original order with the rebuyer given the task of ordering merchandise to bring inventories up to their proper level later in the year.
Receiving Book. A log kept in the receiving department in which incoming shipments of merchandise are entered. Information recorded includes number of packages, name of vendor, date of arrival, etc.
Receiving by Invoice. The process of checking a shipment of merchandise as it arrives at the store or warehouse against the accompanying invoice.
Receiving by Purchase Order. The process of checking a shipment of merchandise delivered to a store against the purchase order, a copy of which has remained on file in the store.
Referral Premium. A gift or other reward offered to a satisfied customer whose recommendation brings in additional prospects and additional sales
Reorder Point. The planned spacing of time between orders of a specific item.
Resale Price Maintenance. The once common practice of manufacturers controlling the price at which their products will be sold at subsequent stages of distribution. These agreements were generally imposed on retailers and were terminated, for the most part, by the Consumer Goods Pricing Act (1975). The term resale price maintenance is also applied to the minimum price laws some states have passed for specific products, such as milk. Also called fair trade or retail price maintenance.
Resource File. A compilation of facts relating to each vendor with whom the store has done business. Facts include the performance of goods, delivery record, condition of goods, etc.
Retail Method of Inventory. A means of calculating ending inventory at cost. All transactions effecting the value of the inventory are recorded at retail values (e.g., sales, purchases, markdowns). The current retail prices of all merchandise on hand at the end of the accounting period are totalled and the sum is translated into cost by using the complement of the cumulative markup percentage. For example, if the cumulative markup percentage is 40 percent, the complement (or cost) is 60 percent. If the closing inventory at retail is $100,000, the closing inventory at cost will be $100,000 x .60, or $60,000. This method provides the retailer with valuable information about inventory levels, including such factors as stock shortages, overages, and gross margin.
Returns and Allowances from Suppliers. The total value of purchased goods returned to the vendor (returns) and unplanned reductions in purchase price (allowances). Each represents a reduction in the cost of total purchases. Also called "purchase returns and allowances."
Returns and Allowances to Customers. The dollar value of goods returned to the store by customers plus price reductions made to customers. Deducted from gross sales to get net sales. Also called "sales, returns and allowances."
Returns to Vendor. (1) Goods shipped back to a supplier by a store. May result from errors in filling the order, unacceptable substitutions, late delivery, defective merchandise, or other breaches of contract. (2) The dollar value of such returns and the resulting unplanned reduction in the cost of the purchase.
Revolving Credit. A regular 30-day charge account which may be paid in full or in monthly installments. If paid in full within 30 days of the date of the statement, there is no finance charge. When installment payments are made, a finance charge is made on the balance at the time of the next billing. The customer may continue to add new purchases to the account until the credit limit is reached.
Robinson-Patman Act (1936). Federal Legislation intended to protect small businesses. The act prohibits vendors from providing "extraordinary" quantity discounts to large volume retailers, thus limiting the large retailers' buying strength and price advantages. The act forbids a manufacturer engaging in interstate commerce from selling to similar customers at different prices if both sales involve products of the same quality and grade and if the resultant price difference serves to substantially lessen competition or create a monopoly. Certain quantity discounts are allowed, as are different prices for private vs. national brands, even if the only difference between them is the label. These regulations are enforced by the F.T.C.
Sales Record Control. A merchandise information system used in unit control which is based on the analysis of sales ticket stubs, sales-checks, and other sales records which reflect an alternation of inventory.
Seconds. Merchandise which is damaged in manufacture or which is otherwise flawed (although still serviceable) and which is offered at retail at greatly reduced prices.
Sell-and-Lease Agreement. A practice whereby a retailer who owns a property sells the property to an investor who, in turn, leases the property back to the original owner. The lease may include an option to buy. The strategy at work here is one of keeping funds free for further expansion activity.
Short Delivery. A shipment of merchandise which is less than the amount ordered and indicated on the invoice.
Shrinkage. The difference between book inventory and actural physical inventory.
Skimming. A retail pricing strategy in which new merchandise is introduced at a high price with the intention of selling as many items as possible before competition drives the price down. Also called creaming.
Sliding Scale Lease. A commercial lease in which there is provision for increased rental as gross sales increase.
Specialty Chain. Chain specialty stores usually selling apparel and most often found in shopping centers. These stores do little advertising and offer few traditional customer services. They depend on the shopping center in its entirety to draw customers. They are, however, efficient and are able to target their market with considerable precision.
Specification Buying. In retailing, the retail organizations (often a large chain store) submits definite specifications to the manufacturer detailing how goods are to be made rather than shopping the market for goods already produced.
Split Ticket. Price tag which is perforated so that, at time of sale, a portion (stub) can be removed for inventory control purposes.
Standing Order. An order for merchandise placed with a vendor in which previously agreed-upon amounts of merchandise are automatically shipped over a predetermined period of time.
Stock Book. A book, usually maintained at the department level by the buyer, in which are entered additions to stock in the form of merchandise received from vendors, and merchandise deductions which represent sales to customers.
Stock Count. A periodic inventory in which each item is counted and recorded, generally by unit price within a classification.
Stock Keeping Unit (SKU). In inventory control and identification systems the stock keeping unit represents the smallest unit for which sales and stock records are kept.
Stock Overage. A condition which exists when the actual merchandise on hand as determined by physical inventory is greater than the amount indicated in the stock records.
Stock Shortage. Represented by the difference between book inventory and actual physical inventory, i.e., unrecorded shrinkage in the store's merchandise.
Straight Lease. The most simple form of lease agreement in which the retailer pays a fixed rent over the entire life of the lease without regard to amount of business done in the store.
Suggested Retail Price. The price of merchandise at retail recommended by the manufacturer to the retailer.
Tear Sheet. In retail advertising, a page from a magazine or newspaper submitted by the publisher to the advertiser as evidence of having been run in the publication.
Trade Discount. A discount offered to wholesalers and middlemen and sometimes to retailers by manufacturers to compensate them for the performance of some marketing function. Thus, the reduction in price is often called a functional discount. A trade discount is independent of quantity discounts and is in effect regardless of when payment is made.
Trade Promotion. A sales promotion in which both the retailer and manufacturer cooperate. Cooperative advertising is one form of trade promotion. Also included are displays, demonstrations, and exhibitions.
Transfer Book. Book used to record which merchandise has been transferred from one department to another.
Transit Time. Period between the time vendor ships merchandise and the time it is received by the retailer.
Universal Product Code (UPC). Adopted by the food industry in 1973, the UPC is a classification system in which each product (and each size, flavor, color, etc.) is assigned a ten-digit number. The numbers are premarked on the package by the manufacturer in the form of a bar code over the ten corresponding Arabic numerals. The bar code is readable by an optical scanner at the checkout counter and the information it contains is transmitted to a computer. It is the computer which contains the prices, not the UPC, and it is the computer which controls the cash register. See also universal vendor marking (UVM).
Universal Vendor Marking (UVM). A voluntary marking system in which the manufacturer attaches an identifying tag or label to his product on which is recorded such information as size, color, style, price, etc. Data is presented in Optical Character Recognition -- Font A which is readable by the human eye as well as by wands and other scanners. See also universal product code.
Visible Shrinkage. Stock shortages due to breakage or wear and tear on merchandise. This shrinkage is accounted for as it takes place in contrast to invisible shrinkage which is discovered through physical inventory.
Wand. A device used in the optical scanning of machine readable symbols. The wand focuses a beam of light on bar-coded surfaces and senses reflections from them. The tip of the wand is kept in contact with the entire length of the coded surface while it is moved to read a message. Most wands have hard tips made of ruby or sapphire. The wand is wired to a decoder which provides computer-compatible output.
Warehouse Control System. A system of inventory control in which the store informs its warehouse of all sales so that the warehouse can adjust inventory records to reflect the change. Warehouse can, at any time, inform the store as to how much merchandise is available.
Workroom. In a retail store, a non-selling area devoted to such support services as apparel alterations, drapery fabrication, etc.