acct 301 book chapter 6 - Learning Objectives After...

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Learning Objectives After studying this chapter, you should be able to: 6-1 Apply the revenue realization principle to determine the accepted time to record sales revenue for typical retailers, wholesalers, manufacturers, and service companies. p. 278 6-2 Analyze the impact of credit card sales, sales discounts, and sales returns on the amounts reported as net sales. p. 279 6-3 Estimate, report, and evaluate the effects of uncollectible accounts receivable (bad debts) on financial statements. p. 283 6-4 Analyze and interpret the receivables turnover ratio and the effects of accounts receivable on cash flows. p. 290 6-5 Report, control, and safeguard cash. p. 293 Founded by then University of California, Santa Barbara, student Doug Otto, Deckers Outdoor is best known for its Teva sports sandals and UGG sheepskin boots. Deckers has become a major player in the casual, outdoor, and athletic footwear market by building on the needs of hikers, trail runners, kayakers, surfers, and whitewater rafters for comfort, function, and performance. Its growth strategy requires building brand recognition by developing and introducing additional innovative footwear that satisfies the company's high standards. “Building the brands” allows Deckers to maintain a loyal consumer following and penetrate new markets. It also has allowed Deckers to continue to grow during the worst recession in more than 25 years. There is a second key component to Deckers's successful growth strategy. Success in the ultracompetitive footwear market requires careful matching of production schedules to customers' needs and careful management of customer receivables. Deckers's successful focus on brand development, product innovation, and working capital management has allowed the company to report the highest gross profit and net income in its history. Page 277 FOCUS COMPANY: Deckers Outdoor Corporation*
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BUILDING BRANDS TO BUILD GROSS PROFIT: MANAGING PRODUCT DEVELOPMENT, PRODUCTION, AND WORKING CAPITAL www.deckers.com UNDERSTANDING THE BUSINESS Planning Deckers's growth strategy requires careful coordination of sales activities, as well as cash collections from customers. Much of this coordination revolves around allowing consumers to use credit cards, providing business customers discounts for early payment, and allowing sales returns and allowances under certain circumstances— strategies that motivate customers to buy its products and make payment for their purchases. These activities affect net sales revenue, the top line on the income statement. Coordinating sales and cash collections from customers also involves managing bad debts, which affect selling, general, and administrative expenses on the income statement and cash and accounts receivable on the balance sheet. Net sales, accounts receivable, and cash are the focus of this chapter. We will also introduce the receivables turnover ratio as a measure of the efficiency of credit-granting and collection activities. Finally, since the cash collected from customers is also a tempting target for fraud and
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