Chapter 6 - Reporting and Interpreting Sales Revenue, Receivables, and Cash

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  • 25 days ago by vince

FOB shipping point - title changes hands at the shipping date

FOB destination - title changes hands on delivery

Sales Discounts to Businesses

If you sell on credit, then you can give an early payment incentive

For example 2/10, n/30

  • 2 is discount percentage
  • 10 is num of days in discount period
  • n is Net (total sales less returns)
  • 30 is max credit period

Upon sale, the journal entry would be

  • Dr Accounts Receivable 3,000
  • Cr Sales Revenue 3,000

If a customer pays early, the journal entry would be

  • Dr Cash 2,940
  • Dr Sales Discount 60
  • Cr Accounts Receivable 3,000

Sales Discount is a contra account to Sales Revenue - This way you have a clean record of sales and discounts

Sales Returns and Allowances

Dr A/R 3,000
Cr Sales Revenue 3,000

then if they return 1,000 worth of goods

Dr Sales Returns Allowance 1,000
Cr A/R 1,000

Sales Returns Allowance is a contra account to Sales Revenue

Credit Card discount

This is also a contra account to sales revenue. Another company could record this as an expense.

Revenue recognition for bundled goods and services - a five step process

Example Apple sells and iPad for $500 of which $50 is for software updates over the next 5 years (so recognize $50/5 = $10 each year for the next five years)

Reporting and Safeguarding cash

Bank Reconciliation