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- Revenue be recorded when earned:
- Goods or service has been delivered
- Amount of customer payments known
- Collection is reasonably assured
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.
- Title changes hands on delivery, and seller normally pays for shipping.
- Revenues recognized at delivery.
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.
- 2: Discount Percent
- 10: Number of days in discount period
- n: Total sales less returns (net)
- 30: Maximum credit period
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
- Sales Revenue
- Less: Credit Card Discounts
- Sales Discounts
- Sales Returns and AllowancesNet Sales
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.
- 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
- 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.
Bases bad debt expense on an estimate of uncollectible accounts.
Bad Debt expense
- Expense associated with estimated uncollectible accounts receivable
- Adjusting journal entry at end of accounting period records the bad debt estimate.
- Bad Debt expense.....................(Dedit)
- Allowance for doubtful accounts (XA)................(Credit)
Writing Off Uncollectable Accounts
- When you know they will not pay:
- Allowance for Doubtful Accounts (XA)......(Debit)
- Accounts Receivable.............................................................(Credit)
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.
- 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.
- 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.
Money or any instrument the banks will accept for deposit and immediate credit to a company's account.
Investment with original maturities of three months or less that are readily convertible to cash and whose value is unlikely to change.
Monthly report from a bank that shows deposits recorded, checks cleared, other debits and credits, and a running bank balance.
- 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.
ALL RECONCILING ITEMS ON THE BOOK SIDE REQUIRE AN ADJUSTING ENTRY TO THE CASH ACCOUNT.
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