Financial Accounting 10/3

What is the Sales returns and Allowances account

A reduction of sales revenues for return of or allowances for unsatisfactory goods.

What are net sales

The top line reported on income statement

How to calculate the net sales

Net sales=Sales Revenue-Sales Discounts- Sales return and allowances

What is FOB Shipping point

It’s when goods are shipped, and title changes hands at shipment and the buyer normally pays for shipping.

On January 1, goods were picked up by Fed-up Delivery, Inc. The goods arrived at the customer's place of business on January 12. If the seller recorded the sale on January 1, then the terms must have been FOB ____.

Shipping Point

When goods are shipped to ____. Title changes hands on delivery, and the seller normally pays for shipping.

FOB destination

A company must disclose the revenue recognition rule they follow

in the footnote called Summary of Significant Accounting Policies

What does the sales discount term 1/7, n/30 indicate?

You can take a 1% discount if you pay within 7 days, or the full amount is due within 30 days

Companies disclose the revenue recognition rule they follow in the footnote to the financial statements entitled _______

Summary of Significant Accounting Policies.

Allowing credit cards, returns or discounts for early payment affects the recording of Blank______.

net sales revenue

ABC Corp. aims to shorten its cash collection period by accepting national credit card payments instead of offering direct credit to customers. What is the drawback of this approach?

Credit card companies charge fees that reduce profits.

Which of the following strategies can companies use to drive sales and collections?

Provide discounts for early collection,Allow customers to purchase on credit

What is revenue recognition principle require

when the company transfers goods and services to customers and the amount the company expects to receive.

What methods do companies use to motivate people to buy their products?

Allowing credit card usage, providing customers with credit and discounts for early payment, allowing returns from customers under certain circumstances.

What does 2/10, n/30 mean?

discount percentage (0.02)-discount days, net-maximum credit period

What does sales discount encourage?

early payment from customers, tend to pay bills providing discounts first.

Any returns of merchandise in which a refund is received and the bill is adjusted, they are accumulated in a separate account called

Sales Returns and allowances

What is sales return and allowances deducted from?

gross sales revenue in determining net sales.

What is Net sales reported on?

on income statement

When a seller promises to provide more than one good or service in a sales contract

it is determined in a five step process to be recoginzed as a revenue

What are the five steps for recognizing more than one good or service as a revenue?

1: Identify the contract between company and customer, 2: Identify the performance obligations, 3: Determine the transaction price, 4: Allocate transaction price to performance obligations, 5: Recognize revenue when each performance obligation is satisfied.

What is a principal?

A specified amount of money, with a definite future date known as maturity date

how does interest work along with principal

It’s a specified amount over one or more future dates

What is a trade receivable?

a current asset that’s created in normal course of sale of merch on credit occurs.

What is a subsidiary account?

a account to track detailed financial info about specific customer, employee

What is bad debt

a account that is recorded in case a debt isn’t paid off

how to solve for bad debt problem

Make end of period adjustments to record estimated bad debt expense, and write off the specific accounts determined to be uncollectible