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Chapter+6+Slides+with+notes - Chapter 6 Reporting and...

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Chapter 6 Reporting and Interpreting Sales Revenue, Receivables, and Cash Slide 1 Chapter Six ACCT 2010 Fall 2011 Allen Huang Learning Objective Credit Card Sales Sales Discounts Sales Returns and Allowances Reporting Net Sales Accounting for Bad Debts Slide 2 Chapter Six Methods for Estimating Bad Debts Percentage of credit sales method (Income Statement Approach) Aging of accounts receivable method (Balance Sheet Approach)
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Accounting for Sales Revenue The revenue principle requires that revenues be recorded when earned: Goods or services have been delivered. Amount of customer Chapter Six Payment is arranged and collection is reasonably assured. payments known. Revenue Recognition Policy 1 Slide 4 Chapter Six
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Revenue Recognition Policy 2 (e) Revenue Recognition Revenue is recognized for catalog and Internet sales when merchandise is shipped to customers and at the time of sale for store sales. Shipping terms for catalog and Internet sales are FOB shipping point, and title passes to the customer at the time and place of Slide 5 Chapter Six shipment. Credit Card Sales to Consumers Companies accept credit cards for several reasons: 1. To avoid losses due to bad checks. 2. To receive payment quicker. 3. To increase sales. 4. To avoid providing credit directly to customers Slide 6 Chapter Six to customers. However, 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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Credit Card Sales to Consumers On January 2, a Deckers factory store’s credit card sales were $3,000. The credit card h 3% i f company charges a 3% service fee. GENERAL JOURNAL Page 34 Date Description Debit Credit Credit Card Discounts are reported as a contra revenue account. Slide 7 Chapter Six Jan. 2 Cash (+A) 2,910 Credit Card Discounts (+XR, R, SE) 90 Sales Revenue (+SE) 3,000 $3,000 × 3% = $90 Credit Card Fee Sales Discounts When customers purchase on open account, they may be offered a sales discount to encourage early payment. 2/10, n/30 # of Days in Otherwise the Maximum Slide 8 Chapter Six Read as: “Two ten, net thirty” Discount Percentage # of Days in Discount Period Otherwise, the Full Amount is Due Maximum Days in Credit Period
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On January 6, Deckers sold $1,000 of merchandise on credit with terms of 2/10, n/30. Sales Discounts to Businesses Prepare the Deckers journal entry. GENERAL JOURNAL Page 34 Date Description Debit Credit Slide 9 Chapter Six Jan. 6 Accounts Receivable (+A) 1,000 Sales Revenue (+SE) 1,000 On January 14, Deckers receives the appropriate payment from the customer for the January 6 sale. Sales Discounts to Businesses Prepare the Deckers journal entry. Page 34 Date Credit $1,000 × 2% = $20 sales discount $1,000 $20 = $980 cash receipt Slide 10 Chapter Six Jan. 14 Cash (+A) 980 Sales Discounts (+XR, R, SE) 20 Accounts Receivable ( A) 1,000 Contra-revenue account
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If the customer remits the appropriate amount on January 20 instead of January 14, what entry would Sales Discounts to Businesses Deckers make?
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