Card Set Information
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.
: Discount Percent
: Number of days in discount period
: Total sales less returns (net)
: Maximum credit period
Sales Returns and Allowances
Reduction of sales revenues for return of or allowances for unsatisfactory goods.
Contra Revenue Account (XR)
Increases on Debit
Credit Card Discounts and Sales Discount separate accounts
Both (XR) though
: Credit Card Discounts
Sales Returns and Allowances
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.
: 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.
: 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)
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.