211c7m1 - Introduction to Financial Accounting Chapter 7 Module 1 Slide 1 CHAPTER 1 MODULE Chapter 7 Module1 1 Chapter 7 Module 1 AMIS 211

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Introduction to Financial Accounting AMIS 211 – Professor Marc Smith 1 Chapter 7, Module 1 Chapter 7, Module 1 Slide 1 AMIS 211 Introduction to Financial Accounting Professor Marc Smith Chapter 7 Module 1 Chapter 7 Module 1 Hi everyone. In this chapter we are going to talk about an issue that is very important and has a very important impact on a company’s financial statements. Now, please go to the next slide and let’s go ahead to the next slide.
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Introduction to Financial Accounting AMIS 211 – Professor Marc Smith 2 Chapter 7, Module 1 Slide 2 Chapter 7 Module 1: Sales of our Product Sales of our Product Question: Which financial statement accounts are affected? Income Statement Balance Sheet 1. Sales Revenue 1. Accounts Receivable 2. Cost of Goods Sold 2. Inventory And, the issue that we are going to deal with is sales of our product—sales of our inventory to our customers. And, the first question that we have to answer is this: What financial statement accounts are affected when we have sales of our product? The accounts that are affected on the financial statements: On the Income Statement: we have to record the Sales Revenue—the revenue earned from selling the product; and the Cost of Goods Sold (CGS)—the cost of the inventory sold to customers. On the Balance Sheet: we have to record the Accounts Receivable that we get from selling the goods; and we have to reduce the inventory to reflect the fact we no longer own it. In this chapter—in this particular chapter—we will focus on those two right there. We will focus on the Sales Revenue and the Accounts Receivable.
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Introduction to Financial Accounting AMIS 211 – Professor Marc Smith 3 Chapter 7, Module 1 In a later chapter, we will look at the other two components: the Cost of Goods Sold and the Inventory. But for this one, we will focus on the Revenue side: Sales Revenue and Accounts Receivable. And, let’s go ahead to the next slide. Slide 3 Revenues are reported when earned in accordance with the realization principle (revenue recognition principle). The receipt of cash is not the determining factor. Revenues are earned when the goods are sold or services are performed. Chapter 7 Module 1: Sales Revenue If cash is received prior to the sale of goods or performance of services it is considered unearned revenue. If the sale of goods or performance of services occurs prior to the receipt of cash, it is an accrued revenue and an account receivable is recorded. And, let’s start with the Sales Revenue component—something that should be a review for us. Revenues are recorded in the period they are earned in accordance with the Realization Principle or the Revenue Recognition concept. Remember: Revenue is recorded when earned. The determining factor is NOT the cash received.
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This note was uploaded on 04/21/2008 for the course ACCT 211m taught by Professor Zeigler/smith during the Winter '07 term at Ohio State.

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211c7m1 - Introduction to Financial Accounting Chapter 7 Module 1 Slide 1 CHAPTER 1 MODULE Chapter 7 Module1 1 Chapter 7 Module 1 AMIS 211

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