Acct 800 Textbook Test 2

Acct 800 Textbook Test 2 - Acct 800 Textbook Test 2 Chapter...

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Acct 800 Textbook Test 2 Chapter 6- Reporting and Interpreting Sales Revenue, Receivables, and Cash Accounting for Sales Revenue - The point at which title ownership changes hands is determined by the shipping terms in the sales contract. -When goods are shipped (FOB) Free-on- board shipping point, title changes hands at shipment and the buyer usually pays for shipping - When shipped FOB destination, title changes hands on delivery, and the seller normally pays for shipping. Sales Discounts to businesses - If full amount is due in 30 days n/30 ( The n means the sales amount net of, or less any returns) - Early payment incentive 2/10,n/30 (deduct 2% from the price if paid within 10 days of purchase, otherwise full amount after 30 days) 2 reasons for this 1. Prompt receipt of cash from customers reduces the necessity to borrow money to meet operating needs 2. Since customers tend to pay bills providing discounts first, a sales discount will decrease the chances the customer will run out of funds before the company’s bill is paid Sales returns and allowances- is a reduction of sales revenues for return of or allowances for unsatisfactory goods Reporting Sales Revenue Sales Revenue - Credit Card Discounts - Sales discounts - Sales Returns and allowances Net Sales(Reported on the income statement - The three subtractions are all contra-revenue accounts Measuring and Reporting Receivables - A trade receivable is created in the normal course of business when a sale of merchandise or services on credit occurs - A non- trade receivable arises from transactions other than the normal sale of merchandise or services - A bad debt expense must be made in the same period that the sales are made Allowance Method- bases bad debt expense on an estimate of uncollectible accounts 1. Making the end of period adjusting entry to record estimated bad debt expense 2. Writing off specific accounts determined to be uncollectible during the period Recording Bad debt expense estimates ( doubtful acct. expense, provision for uncollectible acct.) - Allowance for doubtful accounts (allowance for bad debts, or allowance for uncollectible accts.) is a contra asset account containing the estimated uncollectible accounts receivable.
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- You debit bad debt expense and credit the contra-asset acct. for allowance for doubtful accts. Writing off specific uncollectible accounts - You debit the contra-asset account and credit accts receivable for the bad debt amount Estimating bad debts - Percentage of credit sales method- bases bad debt expense on the historical percentage of credit sales that result in bad debts Beginning balance + Bad debt expense - writeoffs =Ending balance - Aging of accounts receivable method- estimates uncollectible accounts based on the age of each AR( estimate the % of uncollectible for the periods of due dates) Comparison of the 2 methods - Percentage of credit sales. Directly compute the amount to be recorded as bad debt expense on the income statement for the period in the adjusting journal entry. - Aging. Compute the final ending balance we would like to have in the allowance for doubtful
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Acct 800 Textbook Test 2 - Acct 800 Textbook Test 2 Chapter...

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