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Accounts receivable (+A) .................................. 2,000 Sales revenue (+R, +SE) .............................. .. . 2,000 Assets = Liabilities + Stockholders' Equity Accounts receivable +2,000 Sales revenue (+R) +2,000 Before paying for the sandals, however, Fontana discovers that 10 pairs of sandals are not the color ordered and returns them to Deckers. On that date Deckers records: Sales returns and allowances ( + XR, -R, -SE) . . . . . . . . . . . . . . . . . . 500 Accounts receivable (-A) 500 Assets = Liabilities + Stockholders' Equity Accounts receivable -500 Sales returns and allowances ( + XR) -500 In addition, the related cost of goods sold entry for the 10 pairs of sandals would be reversed. 6-1. Apply the revenue realization principle to determine the accepted time to record sales revenue for typical retailers, wholesalers, manufacturers, and service companies. p. 278 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 required revenue recognition point is the time that title changes to the buyer (shipment or delivery of goods). For service companies, it is the time that services are provided. 6-2. Analyze the impact of credit card sales, sales discounts, and sales returns on the amounts reported as net sales. p. 279 Both credit card discounts and sales or cash discounts can be recorded either as contra-revenues or as expenses. When recorded as contra-revenues, they reduce net sales. Sales returns and allow∙ ances, which should always be treated as a contra-revenue, also reduce net sales. 6-3. Estimate, report, and evaluate the effects of uncollectible accounts receivable (bad debts) on financial statements. p. 283 When receivables are material, companies must employ the allowance method to account for uncol-lectibles. These are the steps in the process: a. The end-of-period adjusting entry to record bad debt expense estimates. b. Writing off specific accounts determined to be uncollectible during the period. The adj usting entry reduces net income as well as net accounts receivable. The write-off affects neither.
CH A PT ER 6 Reporting and Interpreting Sales Revenue, Receivables, and Cash 6-4. Analyze and interpret the receivables turnover ratio and the effects of accounts receivable on cash flows. p.