ACC301-ch07

ACC301-ch07 - 1 chapter 7 chapter The Revenue/...

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1 The Revenue/ The Revenue/     Receivable/Cash  Receivable/Cash  Cycle Cycle chapter chapter   7 An electronic presentation An electronic presentation by Douglas Cloud by Douglas Cloud Pepperdine University Pepperdine University
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2 1. Explain the normal operating cycle of a business. 2. Prepare journal entries to record sales revenue, including the accounting for bad debts and warranties for service or replacement. 3. Analyze accounts receivable to measure how efficiently a firm is using this operating asset. Learning Objectives Continued Continued
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3 4. Discuss the composition, management, and control of cash, including the use of a bank reconciliation. 5. Recognize appropriate disclosures for presenting sales and receivables in the financial statements. Learning Objectives Continued Continued
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4 Learning Objectives 6. Explain how receivables may be used as a source of cash through secured borrowing or sale. 7. Describe proper accounting and valuation of notes receivable 8. Understand the impact of uncollectible accounts on the statement of cash flows. EXPANDED LEARNING OBEJCTIVES:
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5 Revenue/Receivables/Cash Timeline DELIVER a product or service COLLECT cash ( includes discounts) RETURNS RETURNS ACCEPT returned products STRUGGLE with nonpaying customers PROVIDE continuing services
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6 The Operating Cycle of a Business Cash Cash Accounts Receivables Inventory
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7 Assume that Acme Manufacturing sold merchandise to Harper Company on account. The Operating Cycle of a Business When the collection takes place: Cash 1,000 Accounts Receivable 1,000 Payment received on account. When the inventory is sold on account: Accounts Receivable 1,000 Sales 1,000 Sold merchandise to Harper Company on account.
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8 Trade receivables : Receivables arising from normal operating activities. Notes receivable : Trade receivables evidenced by a formal written promise to pay. Nontrade receivables : All receivables arising from activities other than normal operations. Receivables are all claims against other entities. They are usually settled in cash. The Operating Cycle of a Business
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9 The Operating Cycle of a Business Nontrade receivables arise from a variety of transactions, such as— (1) The sale of securities or property other than inventory (2) Deposits to guarantee contract performance or expense payments (3) Claims for rebates and tax refunds (4) Dividends and interest receivable
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10 Accounting for Sales Revenues A trade discount may vary by customer, depending on the volume of business or size or order.
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11 Accounting for Sales Revenues A cash (sales) discount is offered to customers to encourage prompt payment of bills.
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12 Assume on March 15, $1,000 of merchandise is sold on account. The terms of the agreement are 2/10, n/30. The firm uses the gross method for record sales on
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ACC301-ch07 - 1 chapter 7 chapter The Revenue/...

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