Card Set Information

2010-11-14 22:11:39

Chap 6
Show Answers:

  1. Revenue Principle
    • Revenue be recorded when earned:
    • Goods or service has been delivered
    • Amount of customer payments known
    • Collection is reasonably assured
  2. FOB (Free on board) Shipping Points
    • For sellers of goods, sales revenue is recorded when title and risks of ownership transfer to the buyer.
    • Title changes hands at shipment, and buyer normally pays shipping.
    • Revenue recognized at shipment.
  3. FOB Destination
    • Title changes hands on delivery, and seller normally pays for shipping.
    • Revenues recognized at delivery.
  4. Credit Card Sales
    • 1.To increase sales.
    • 2.To avoid providing credit directly to customers.
    • 3.To avoid losses due to bad checks.
    • 4.To avoid losses due to fraudulent credit card sales.
    • 5.To receive payment quicker.
  5. 2/10,n/30
    • 2: Discount Percent
    • 10: Number of days in discount period
    • n: Total sales less returns (net)
    • 30: Maximum credit period
  6. Interest Rate
    • Amount Saved
    • Amount Paid
  7. Sales Returns and Allowances
    • Reduction of sales revenues for return of or allowances for unsatisfactory goods.
    • Contra Revenue Account (XR)
    • Debit Damaged
    • Debit Returned
    • Increases on Debit
    • Credit Card Discounts and Sales Discount separate accounts
    • Both (XR) though
  8. Sales Revenue
    • Sales Revenue
    • Less: Credit Card Discounts
    • Sales Discounts
    • Sales Returns and Allowances
    • Net Sales
  9. Gross Profit Percentage
    • Gross Profit / Net Sales
    • Measures a company's ability to charge premium prices and produce goods and services at low cost.
    • Higher gross profit results higher net income.
  10. Account Receivable
    • Created by a credit sale on an open account.
    • Trade receivables: are amounts owed to the business for credit sales of goods, or
    • services. Normal course of business when a sale of merchandise or services on credit occurs.
    • Nontrade receivables: are amounts owed to the business for other than business
    • transactions.
  11. Notes Receivable
    • Promise in writing to pay:
    • 1) specified amount of money called the principal, at a definite future date known as the maturity date
    • 2) specified amount of interest at one or more future dates.
    • Interest is the amount charged for use of the principal.
  12. Allowance Method
    Bases bad debt expense on an estimate of uncollectible accounts.
  13. Bad Debt expense
    • Expense associated with estimated uncollectible accounts receivable
    • Adjusting journal entry at end of accounting period records the bad debt estimate.
    • Example:
    • Bad Debt expense.....................(Dedit)
    • Allowance for doubtful accounts (XA)................(Credit)
  14. Writing Off Uncollectable Accounts
    • When you know they will not pay:
    • Allowance for Doubtful Accounts (XA)......(Debit)
    • Accounts Receivable.............................................................(Credit)
  15. Percentage of Credit sales Method
    • Credit sales X bad debt loss rate = bad debt expense
    • Gets recorded directly as bad debt expense and an increase in allowance fore doubtful accounts.
  16. Aging Method
    • Estimates based on the age of each account.
    • Amount given represents TOTAL estimated uncollectible accounts.
    • In order to get the adjusting entry, take DESIRED balance - balance already in Allowance for doubtful accounts.
    • This will total your adjusting entry.
  17. Receivables Turnover
    • Receivables Turnover= Net sales/ Average net Trade Accounts receivable
    • Measures how many times average receivables are recorded and collected for the year.
    • Higher the ratio, the faster the collection of receivables.
  18. Cash
    Money or any instrument the banks will accept for deposit and immediate credit to a company's account.
  19. Cash Equivalents
    Investment with original maturities of three months or less that are readily convertible to cash and whose value is unlikely to change.
  20. Bank Statment
    Monthly report from a bank that shows deposits recorded, checks cleared, other debits and credits, and a running bank balance.
  21. Bank Reconciliation
    • Process of comparing the ending cash balance in the company's records and the ending cash balance reported by the bank on the monthly bank statement.
    • Two sides to it: Book side and Bank side
    • Balance per bank + Deposits in transit - Outstanding checks +/- Bank errors.
    • Balance per Book + Interest paid by bank - NSF/Service charge +/- Company errors
    • 1. Identify Outstanding checks: (compare the list of canceled checks on the bank statement with the record of checks maintained by the company. )
    • 2. Identify deposits in Transit: comparing the deposit slips on hand with those listed on the bank statement.
    • 3. Bank charges: NSF, Interest received
    • 4. Determine error impact: look at checks.
  22. Book side