ACCT chapter 6 b

What is the Revenue Recognition Principle?

It recognizes revenue when a company transfers promised goods or services to customers in the amount it expects to receive.

What are Contra-Revenue Accounts?

Accounts used to reduce gross revenue, such as sales discounts, sales returns and allowances, and credit card discounts.

How is Net Sales calculated?

Net Sales is gross sales minus any sales returns, allowances, and discounts.

What are Sales Returns and Allowances?

A contra-revenue account used to record goods returned by customers.

What do Credit Card Discounts refer to?

Fees charged by credit card companies that reduce the revenue recognized from sales.

What are Gross Sales?

Total sales before deducting any sales returns, allowances, or discounts.

What are Sales Discounts?

Reductions in the amount owed by customers if payment is made within a certain period.

What is Accounts Receivable?

Money owed to a company by its customers for goods or services delivered but not yet paid for.

What are Performance Obligations?

Promised goods or services to customers that are identified in a contract.

What is a Transaction Price?

The amount of consideration that an entity expects to receive in exchange for transferring promised goods or services.

What is a Journal Entry?

A record of a transaction in

Cash (+A)

An accounting entry that increases the cash available to a company, classified as an asset.

Sales Revenue (+R, +SE)

The income generated from selling goods or services, which increases retained earnings.

Sales Discounts Account (+XR, -SE)

A contra-revenue account used to track discounts given to customers.

Sales Revenue Presentation

Sales revenues are presented net of contra-revenue amounts on the income statement.

Financial Statement Example

A representation of a company's financial performance, reflecting revenue recognition practices.

5-Step Process for Revenue Recognition

Steps including identifying a contract, performance obligations, transaction price, allocating price, and recognizing revenue.

Journal Entry for Sales Returns

Adjusting entries made to reflect the return of goods sold.

Credit Card Transaction Fees

Costs incurred by a business for processing credit card transactions.

Percentage of Completion method

Accounting method used for recognizing revenue for long-term projects based on the proportion of work completed.