Presentation1 financial and accounting standards

Financial reporting

1. Chapter 6 Reporting and Interpreting Sales Revenue, Receivables, and Cash

2. 6- 3 Accounting for Sales Revenue The revenue principle requires that revenues be recorded when earned: An exchange has taken place. Collection is probable. The earnings process is nearly complete.

3. 6- 4 Reporting Net Sales Companies record sales discounts, sales returns and allowances, and credit card discounts separately to allow management to monitor these transactions.

4. 6- 5 Credit Card Sales to Consumers Companies accept credit cards for several reasons: To increase sales. To avoid providing credit directly to customers. To avoid losses due to bad checks. To receive payment quicker.

5. 6- 6 When credit card sales are made, the company must pay the credit card company a fee for the service it provides. Credit Card Sales to Consumers

6. 6- 7 Credit Card Sales to Consumers On January 2, a Timberland factory store’s credit card sales were $3,000. The credit card company charges a 3% service fee. Prepare the Timberland journal entry.

7. 6- 8 Credit Card Sales to Consumers On January 2, a Timberland factory store’s credit card sales were $3,000. The credit card company charges a 3% service fee. Prepare the Timberland journal entry. Credit Card Discounts are reported as a contra revenue account.

8. 6- 9 Sales to Businesses on Account When companies allow customers to purchase merchandise on an open account , the customer promises to pay the company in the future for the purchase. Fontana Shoes

9. 6- 10 2/10, n/30 When customers purchase on open account, they may be offered a sales discount to encourage early payment. Read as: “Two ten, net thirty” Sales Discounts to Businesses

10. 6- 11 2/10, n/30 Discount Percentage # of Days in Discount Period Otherwise, the Full Amount Is Due Maximum Days in Credit Period Sales Discounts to Businesses

11. 6- 12 On January 6, Timberland sold $1,000 of merchandise on credit with terms of 2/10, n/30. Prepare the Timberland journal entry. Sales Discounts to Businesses

12. 6- 13 On January 6, Timberland sold $1,000 of merchandise on credit with terms of 2/10, n/30. Prepare the Timberland journal entry. Sales Discounts to Businesses

13. 6- 14 On January 14, Timberland receives the appropriate payment from the customer for the January 6 sale. Prepare the Timberland journal entry. Sales Discounts to Businesses

14. 6- 15 $1,000 × 2% = $20 sales discount $1,000 - $20 = $980 cash receipt On January 14, Timberland receives the appropriate payment from the customer for the January 6 sale. Prepare the Timberland journal entry. Contra-revenue account Sales Discounts to Businesses

15. 6- 16 If the customer remits the appropriate amount on January 20 instead of January 14, what entry would Timberland make? Sales Discounts to Businesses

16. 6- 17 Since the customer paid outside of the discount period, a sales discount is not granted. If the customer remits the appropriate amount on January 20 instead of January 14, what entry would Timberland make? Sales Discounts to Businesses

17. 6- 18 To Take or Not Take the Discount With discount terms of 2/10,n/30, a customer saves $2 on a $100 purchase by paying on the 10 th day instead of the 30 th day. Annual Interest Rate = 365 Days 20 Days × 2.04% = 37.23% $2 $98 = 2.04% Interest Rate for 20 Days = Interest Rate for 20 Days = Amount Saved Amount Paid

18. 6- 19 Sales Returns and Allowances Debited for damaged merchandise. Debited for returned merchandise. Contra revenue account.