Lecture10_spring_2009

Lecture10_spring_2009 - Lecture10 Spring2009...

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Lecture 10 Spring 2009 Sales and Accounts Receivable
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Overview for Today: Sales and Receivables Review of Contra Accounts Link between Sales and Accounts Receivable When Total Sales   Actual Sales Sales Returns Sales Discounts When Total Accounts Receivable   Accounts to be Received Estimating and Recording Expected Default
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Review of Contra Accounts 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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Review of Contra Accounts 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 We use the contra account to collect subtractions, so we can report it separately. These accounts are called contra  accounts because they counter (or subtract from)  the original 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) Accumulated Depreciation (a contra-asset account) Contra accounts allow you to keep track of the original account balance and any  associated changes in that balance 
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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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Review of Contra Accounts Less informative option: 4% of Wal-Mart’s $100,000 Holiday sales were returned to the store for refund
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This note was uploaded on 02/02/2012 for the course ACCT 101 taught by Professor Armstrong during the Spring '09 term at UPenn.

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Lecture10_spring_2009 - Lecture10 Spring2009...

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