Class 2 Revenue Receivables - Revenue Receivables Sale of...

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Revenue & Receivables
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Sale of Goods and Services Sales of goods are generally recognized at the time the goods or title passes to the buyer. Sales of services are generally recognized at the time the service is performed. Sales may be for cash: Sales may be on account (credit): 2
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Issues in Accounting for Revenues Discounts Trade discounts Cash (sales) discounts Returns and Allowances Bad Debts Warranties Sales Made in Exchange for a Note 3
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Trade Discounts Discount from the list price given to customers based on volume of business, size of order or other factors. Account for revenue, net of discount. 4
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Cash (Sales) Discounts Discount off the invoiced price offered to encourage prompt payment. Discount can be taken only if customer makes payment within a specified period of time. Terms often stated in the form “2/10, n/30” (2% discount if paid with 10 days, net amount due in 30 days). Two accounting methods: Gross method Net method 5
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Cash (Sales) Discount—Gross Method 6 Partial payment of $294, received within discount period: “Sales Discounts” is a contra-account for Sales. Sales are reported net of discounts on income statement.
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Cash (Sales) Discount—Net Method 7 “Sales Discounts Not Taken” is a revenue account.
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Sales Returns and Allowances 8 “Sales Returns and Allowances” is a contra-account for Sales. Sales are reported net of returns and allowances on income statement.
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Sales Return and Allowances 9
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Bad Debts Occur when customers do not pay for credit purchases. Reported as Bad Debt Expense . GAAP requires that bad debt expense be recorded in the same period as the sale. Allowance method. Preserves matching of revenues and expenses. Requires estimate of bad debts. Accounts Receivable are reported on the balance sheet at Net Realizable Value . Net of allowance for uncollectibles. No discounting.
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