Week 6 Sales revenue+Receivable (instructor).docx -...

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1ACCT2010Principles ofAccounting ISales revenue; receivable andinternal control of cash
2Relevant readings1.Chapter 6– Key points (textbook page reference)a.Common issues when recording sales pp.284-288b.Issues about measuring & reporting receivables pp.289-298c.Skip reporting & safeguarding cash pp.299-304d.Chapter supplement p.307e.Financial analysis tools– receivable turnover ratio p.296 andaverage collection period p.2962.Demonstration Case A only (pp.305-306), skip Case B
3ContentI.Shipping terms & net salesII.Classifying receivablesIII.Accounting for bad debtsIV.Recording discounts & returnsV.Financial analysis toolVI.Class activitiesa.Recording, reporting & evaluating a bad debt estimateb.Preparing income statement & computing receivable turnover ratiowith discounts, returns & bad debts
4ACCT2010Principles ofAccounting II.Shipping terms & net sales
5Shipping terms & net sales1.Revenue recognition: revenues be recognized (recorded)when they are earned, i.e., goods delivered or servicesprovided– but how do we know?2.Earned– whentitle & risksof ownership transferred to buyer3.Shipping terms mattera.FOB (free on board)shipping point– title changes hands atshipping (at seller’s terminal/shipping dock)b.FOB destination– title changes hands at delivery (at buyer’sterminal/receiving dock)Have not earned, not yet put into income statement as revenueNeed negotiationLoadingIf the cut-off point of transfer the title is in the off loading point ( FOBdestination) , then the risk when carrying goods in sea journey likeinsurance and stocks is bear by the sellers.If there is a strike in the FOB destination port, goods can’t be off-loaded, the title can’t be changed, sellers worry
6Shipping terms & net sales1.Revenue recognition: revenues be recognized (recorded)when they are earned, i.e., goods delivered or servicesprovided– but how do we know?2.Earned– whentitle & risksof ownership transferred to buyer3.Shipping terms mattera.FOB (free on board)shipping point– title changes hands atshipping (at seller’s terminal/shipping dock)b.FOB destination– title changes hands at delivery (at buyer’sterminal/receiving dock)If the cut-off point of transfer the title is in the loading point ( FOBshipping point) , then the risk when carrying goods in sea journey likeinsurance and stocks is bear by the buyers.
7Shipping terms & net sales4.Sales revenue (gross sales)– total sales recognized based onrevenue rules5.Net sales– first line reported on income statement, whileGross salesminus (contra revenue)the followingequals tonet salesa.Credit card discountb.Sales discountsc.Sales returns & allowancesGross: Not yet netInitial numberContra revenue: separateledgers that will be kepttracking

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