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Lecture10 2010.10.18 PostClass

Lecture10 2010.10.18 PostClass - Lecture 10 Sales and...

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Lecture 10 Sales and Accounts Receivable
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Overview for Today: Sales and Receivables Review of Contra Accounts When Total Sales ≠ Actual Sales Sales Returns Sales Discounts When Total Accounts Receivable ≠ Expected Amount Receivable Estimating and Recording Defaults
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Review of Contra-Accounts
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Review of Contra Accounts Contra accounts collect subtractions from primary accounts at times when it is more informative to keep subtractions separate from additions Some common contra-accounts Sales Returns and Allowances (a contra-revenue account) Allowance for Doubtful Accounts (a contra-asset account) Contra accounts allow you to keep track of the original account balance and any associated changes in that balance Accumulated Depreciation (a contra-asset account)
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Review of Contra Accounts Contra accounts remain attached or connected to the primary account They simply pull subtractions out separately from additions Less informative option: Example: During the year, Mr. T “used up” 20% of useful life of his $100 calculator Calculator 100 20 80 (Debit) Depreciation Expense $20 (Credit) Calculator $20 Why is this less informative? What information is lost?
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Review of Contra Accounts Contra accounts remain attached or connected to the primary account They simply pull subtractions out separately from additions More informative option: Calculator Why is this more informative? What information is gained? Accum. Depr: Calculator Example: During the year, Mr. T “used up” 20% of useful life of his $100 calculator 100 20 (Debit) Depreciation Expense $20 (Credit) Accumulated Depreciation: Calculator $20
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Sales Returns
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Contra-Accounts Applied: Sales and Accounts Receivable Merchandise Sales Revenue $96,000 How informative is this? What percentage of total sales is expected to be returned to the store for a refund? Accounts Receivable $80,000 How informative is this? What percentage of accounts receivable is expected to never get paid?
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Total Sales Revenue $100,000 Is this more informative? What percentage of total sales is expected to be returned to the store for a refund? Accounts Receivable $100,000 Is this more informative? What percentage of accounts receivable is expected to never be paid? Less: Sales Returns ($4,000) Net Sales Revenue $96,000 Less: Doubtful Accounts ($20,000) Net Accounts Receivable $80,000 Contra-Accounts Applies: Sales and Accounts Receivable
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Total Sales Revenue $100,000 Accounts Receivable $100,000 Less: Sales Returns ($4,000) Net Sales Revenue $96,000 Less: Doubtful Accounts ($20,000) Net Accounts Receivable $80,000 These accounts are called contra accounts because they counter (or subtract from) the original accounts Contra-asset Contra-revenue Contra-Accounts Applied: Sales and Accounts Receivable
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Less informative option: 4% of Wal-Mart’s $100,000 Holiday sales were returned to the store for refund Sales Revenue 100,000 4,000 96,000 (Debit) Sales Revenue 4,000 (Credit) Cash (for refunds) 4,000 Contra accounts remain attached or connected to the primary account They simply pull subtractions out separately from additions Sales Returns
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More informative option:
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