BUSI 610- Chapter 06 (Sep 12, 2017) (1).pptx - BUSI 610...

This preview shows page 1 - 10 out of 38 pages.

BUSI 610 Introduction to Financial AccountingChapter 6Asset Recognition and Operating Assets
Which accounts are we going to focus on?
Accounting for Net Sales RevenueGoods and services have been transferred to customers.The appropriate amount of revenue to record is the amount the seller expects to receive.Shipping terms for goods are FOB (free on board):Destination - the title of the goods changes hands on delivery. Shipping point - the title of the goods changes hands at the shipping date.The revenue recognition principle requires that revenues be recorded when earned.
Credit Card Sales to ConsumersCompanies accept credit cards for several reasons:1.To increase sales.2.To avoid the costs of 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.When credit card sales are made, the company must pay the credit card company a fee for the service it provides.Sales revenue $3,000 Less: Credit card discounts (0.03 × 3,000) 90 Net sales (reported on the income statement) $2,910
To Take or Not to Take the Discount, That Is the QuestionFINANCIAL ANALYSIS$$$With discount terms of 2/10, n/30, a customersaves $2 on a $100 purchase by payingon the 10th day instead of the 30th day.Annual Interest Rate =365 Days20 Days× 2.04% = 37.23% $2$98= 2.04% for 20 Days= Interest Rate for 20 DaysAmount SavedAmount Paid
Sales Returns and AllowancesDamaged MerchandiseReturned MerchandiseCustomers have a right to return unsatisfactory or damaged merchandise and receive a refund or an adjustment to their bill. Such returns are often accumulated in a separate account called Sales Returns and Allowances.
Measuring and Reporting ReceivablesBalance Sheet ClassificationsCurrent (short-term)Noncurrent (long-term)Accounts receivable are created when companies have sales to customers on open accounts.Notes receivable are written promises from another party to pay with specified terms. Trade receivables are amounts owed to the business for credit sales of goods or services.Nontrade receivables are amounts owed to the business for reasons other than the normal sale of merchandise or services.

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture