Chapter 6 - Chapter 6 Reporting and Interpreting Sales...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 6 - Reporting and Interpreting Sales Revenue, Receivables and Cash Overview This chapter discusses measuring, recording, and reporting revenues, cash, and receivables on the financial statements. Revenue recognition policies are widely recognized as one of the most important determinants of the fair presentation of financial statements. For most merchandisers and manufacturers, the appropriate revenue recognition point is the time of shipment or delivery of goods. For service companies, it is the time services are provided. Important issues facing companies are proper recording of credit card discounts and cash sales discounts, sales returns and allowances, and bad debt expense. Estimating, reporting, and evaluating bad debts are considered by companies where receivables are material. The accounts receivable turnover ratio is an important tool for companies. The gross profit percentage is also an important assessment tool for managers, analysts, and creditors. Cash is the most liquid of all assets, and it flows continually into and out of a business. As a result, cash presents some of the most critical control issues facing managers. Also, the management of cash is of critical importance to decision makers. Companies must have cash available to meet current needs, yet must avoid excess amounts of idle cash which produce no revenue. Business Background It is important to understand the impact of net sales on the income statement and how the net sales amount is derived. Cash and accounts receivable are important items listed as current assets on the balance sheet. They are critical elements for the cash management of a business. They are also key in terms of fraud prevention. Proper internal controls over these assets should help to avoid misappropriation of their use. Financial statement users (lenders, shareholders, and analysts) carefully monitor these elements in the financial statements. The growth strategy of a company requires careful coordination of marketing, production, and financing activities. Revenue Principle Revisited The revenue principle requires that revenues be reported when earned. This is determined at the point when an exchange has taken place, the earnings process is complete or nearly complete, and collection is probable. The collection may be cash or the cash equivalent (for example, credit cards or traded-in property). Chapter 6 Review Notes Acc 311 - Page 1
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Merchandising companies normally record sales revenue when goods are transferred to the buyer, and service companies usually record revenue when services are provided to the customer. The revenue recognition rules which a company follows should be disclosed in the notes to the financial statements, and the rules should be applied consistently. If the sale involves a non-cash asset for payment, revenue is recognized in the amount of "value" given
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 02/12/2012 for the course ACC 311 taught by Professor Charrier during the Fall '08 term at University of Texas.

Page1 / 9

Chapter 6 - Chapter 6 Reporting and Interpreting Sales...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online