Unearned sales revenue would increase when a company

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Unformatted text preview: ies Inventory Interest Payable, Prepaid Interest, Premium on Bonds Payable, and Discount on Bonds Payable. Note that if a company does not use a Premium on Bonds Payable account for bonds issued at a premium or a Discount on Bonds Payable account for bonds issued at a discount, it would be necessary to use the Bonds Payable account to analyze cash flows associated with interest. Unearned Rent Accumulated Depreciation Concluded Sales Revenue 1. Unearned Sales Revenue would increase when a company collects cash from a customer in advance of providing goods or services. Since this amount would not be reflected in Sales Revenue until the company provided goods or services, the amount of the increase in Unearned Sales Revenue would have to be added to accrual­basis sales. 2. Accounts Receivable would increase when a company makes credit sales. The amount of the increase would be reflected in Sales Revenue, yet the company would not have collected any cash. Thus, the amount of the increase in Accounts Receivable would have to be deducted from accrual­basis sales. 3. An increase in Allowance for Doubtful Accounts by itself has no effect on accrual­basis sales. However, one must analyze the account to determine whether the company had any write­offs or recoveries of previously written off accounts during the year. Write­offs would be deducted from accrual­basis sales, while recoveries would be added to accrual­basis sales to arrive at cash collections from sales. Cost of Goods Sold Adjusting the balance in Cost of Goods Sold for changes in Merchandise Inventory and Accounts Payable will convert COGS from the accrual­basis to the cash outflow for inventory. An increase in Merchandise Inventory means that the company purchased more inventory than it sold during the year. An increase in the balance of Merchandise Inventory is added to COGS because it is assumed that the company paid cash for the inventory it acquired during the year. However, an increase in the balance of Accounts Payable indicates that this assumption is not valid. That is, an increase in Accounts...
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