Chapter 6 Review: Quick Questions 1. Explain the difference between sales revenue and net sales. 2. What is gross profit or gross margin on sales? In your explanation, assume that net sales revenue was $100,000 and cost of goods sold was $60,000. 3. What is a credit card discount? How does it affect amounts reported on the income statement? 4. What is a sales discount? Use 1/10, n/30 in your explanation. 5. What is the distinction between sales allowances and sales discounts? 6. Differentiate accounts receivable from notes receivable. 7. Which basic accounting principle is the allowance method of accounting for bad debts designed to satisfy? 8. Using the allowance method, is bad debt expense recognized in (a) the period in which sales related to the uncollectible account are made or (b) the period in which the seller learns that the customer is unable to pay? 9. What is the effect of the write-off of bad debts (using the allowance method) on (a) net income and (b) accounts receivable, net? 11. Define cash and cash equivalents in the context of accounting. Indicate the types of items that should be included and excluded. 14. What are the purposes of a bank reconciliation? What balances are reconciled? 15. Briefly explain how the total amount of cash reported on the balance sheet is computed. Problems A. Reporting Net Sales and Expenses with Discounts, Returns, and Bad Debts (P6-1) The following data were selected from the records of Sharkim Company for the year ended December 31, current year. In the following order, except for cash sales, the company sold merchandise and made collections on credit terms 2/10, n/30 (assume a unit sales price of $500 in all transactions and use the gross method to record sales revenue).