FA Ch 6 - Accounting for Net Sales Revenue(298 The revenue recognition principle requires that revenues be recorded when earned Goods and services have

FA Ch 6 - Accounting for Net Sales Revenue(298 The revenue...

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Accounting for Net Sales Revenue (298) The revenue recognition principle requires that revenues be recorded when earned. Goods and services have been transferred to customers (=EARNED) The appropriate amount of revenue to record is the amount the seller expects to receive FOB (Free on Board) Shipping Point: when goods are shipped FOB, title changes hands at shipment, and the buyer normally pays for shipping -Revenues are recognized at shipment FOB destination: title changes hands on delivery, and the seller usually pays for shipping -Revenues are recognized at delivery Motivating Sales &Consumers Credit Card Sales to Consumers 1. Increasing customer traffic 2. Avoiding the costs of providing credit directly to consumers, including recordkeeping and bad debts 3. Lowering losses due to bad checks 4. Avoiding losses from fraudulent credit cards 5. Receiving money faster (CC receipts can be directly deposited in bank) a. Credit card discount: fee charged by the credit card company for its services b. Some companies report credit card discount as part of selling, general, and administrative expenses c. Sales Revenue $ 3,000 Less: Credit Card discounts (0.03 x 3,000) $ 90 Net Sales (reported on the income statement) $ 2,910 d. (dr.) cash 2,910 (dr.) CC fee expense 90 (cr.) Sales Revenue 3,000 Sales Discounts to Businesses Often credit terms are abbreviated n/30: full price due within 30 days n = sales amt. net of (or less) any sales returns sales (cash) discount: cash discount offered to encourage prompt payment of an account receivable o 2/10, n/30: customer may deduct 2% from invoice price if cash payment is made within 10 days, if not full sales price is due within 30 days Customer saves $2 on a $100 purchase by paying on the 10 th day instead of the 30 th day o Amount Saved = Interest Rate (for time period) 2 = 2.04% for 20 days Amount Paid 98 Annual Interest Rate = 365 x 2.04% = 37.23% 20 Cash Discounts Benefits to companies:
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1. prompt receipt of cash from customers reduces necessity to borrow money to meet operating needs 2. Since customers ten to pay bills providing discounts first, a sales discount also decreases the chances that the customer will run out of funds before the company’s bill is paid Net Sales = Sales Revenue Sales Discounts Sales Returns & Allowances A reduction of sales revenues for return of or allowances for unsatisfactory goods NET SALES = Sales Revenue Sales Returns & Allowances * Cost of goods sold related to returned items would also be reduced Reporting Net Sales (301) On the company’s books, credit card discounts, sales discounts, and sales returns and allowances are accounted for separately to allow managers to monitor the costs of credit card use, sales discounts, and returns.
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  • Fall '15
  • Balance Sheet, Income Statement, Revenue, Revenue Recognition, Internal Controls, BAD DEBT EXPENSE, Generally Accepted Accounting Principles, Net Sales, Receivables Turnover, sales discount, Reporting Receivables, credit card discount, Sales Returns And Allowances, Allowance For Doubtful Account, Aging Of Accounts

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