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

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Chapter 6: Reporting and Interpreting Sales Revenue, Receivables, and Cash Gross profit : net sales minus cost of sales These activities affect net sales revenue, cash, and accounts receivable ACCOUNTING FOR SALES REVENUE Revenue principle : record revenues when earned FOB (free on board) shipping : title changes hands at shipment; buyer pays for shipping FOB destination : title changes hands on delivery; seller pays for shipping Record revenue amount in the cash equivalent sales price Motivation for customers to buy include… o Credit card for payment o Direct credit and discounts for early payment o Returns under certain circumstances Credit card sales to consumers Advantages o Increases customer traffic o Avoid bad debts o Avoid bad checks o Faster receipt of money Disadvantages o Credit card discount : fee charged by credit card company for services Sales discounts to businesses Sales discount : cash discount offered to encourage prompt payment of account receivable Ex: 2/10 n/30 means customers receive 2% off invoice price if cash pay within 10 days of sale (full sales price payment due within 30 days) Advantages of encouraging customers to pay more quickly… o Avoids company’s borrowing money for operating needs o Decreases chances that customer will run out of money by the payment’s due date (discounts result in the customer wanting to pay that bill first ) Sales returns and allowances Sales returns and allowances : reduction of sales revenues for return of or allowances for unsatisfactory goods Reporting net sales Net sales = sales revenue – (credit card discounts + sales discounts + sales returns and allowances) These discounts are all contra-revenue accounts MEASURING AND REPORTING RECEIVABLES Classifying receivables Classification one o Account receivable : created by credit sale; open accounts owed to business by trade customers;
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