Chapter 7

Chapter 7 - Chapter 7 Reporting and Interpreting Sales...

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Financial Accounting, Third Canadian Edition 7-1 Chapter 7 Reporting and Interpreting Sales Revenue, Receivables, and Cash
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Financial Accounting, Third Canadian Edition 7-2 Accounting for Sales Revenue The revenue principle requires that revenues be recorded when earned: Goods or services have been delivered. Collection is reasonably assured. Amount of customer payments known.
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Financial Accounting, Third Canadian Edition 7-3 Companies record sales discounts, sales returns and allowances, and credit card discounts separately to allow management to monitor these transactions. Reporting Net Sales
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Financial Accounting, Third Canadian Edition 7-4 Companies accept credit cards for several reasons: 1. To increase sales. 2. To avoid 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. Credit Card Sales to Consumers When credit card sales are made, the company must pay the credit card company a fee for the service it provides.
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7-5 Sales to Businesses on Account When companies allow customers to purchase merchandise on an open account, the customer promises to pay the company in the future for the purchase.
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Financial Accounting, Third Canadian Edition 7-6 2/10, n/30 2/10, n/30 Sales to Businesses on Account Discount Percentage # of Days in Discount Period Otherwise, the Full Amount Is Due Maximum Days in Credit Period Read as: “Two ten, net thirty” When customers purchase on open account, they may be offered a sales discount to encourage early payment.
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Financial Accounting, Third Canadian Edition 7-7 Debited for damaged merchandise. Debited for returned merchandise. Contra revenue account. Sales Returns and Allowances
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Financial Accounting, Third Canadian Edition 7-8 Gross Profit Percentage Gildan Delta Apparel Hanesbrands 32.6% 29.6% 33.2% 2006 Gross Profit Comparisons Gross Profit Percentage $252,095,000 $773,190,000 = = 32.6% Gross Profit Percentage Gross Profit Net Sales = All other things equal, a higher gross profit results in higher net income.
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Financial Accounting, Third Canadian Edition 7-9 Measuring and Reporting Receivables Accounts Receivable Trade receivables are amounts owed to the business for credit sales of goods, or services. Nontrade receivables are amounts owed to the business for other than business transactions.
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Financial Accounting, Third Canadian Edition 7-10 $1,200 January 5, 2006 Sixty days after date I promise to pay to First Canadian Bank One thousand two hundred --------------------------------- Dollars Payable at Value received with interest at per annum No.              Due  Gildan Activewear 10242 March 6, 2007 12% Pat Rogers Due Date Maker Interest Rate Principal Term Payee Measuring and Reporting Receivables – Notes Receivable
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Financial Accounting, Third Canadian Edition 7-11 Accounting for Bad Debts Bad debts result from credit customers who will not pay the business the amount they owe, regardless of collection efforts.
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Financial Accounting, Third Canadian Edition 7-12 Matching Principle Bad Debt Expense Sales Revenue Record in same accounting period.
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Chapter 7 - Chapter 7 Reporting and Interpreting Sales...

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