Accounts Payable, Premiums, Warranty, Accrued Liability, and Deferred Revenue Flashcards
Also known as trade payable, is the amount owed by an entity for the purchase of goods, raw material, or services in the ordinary course of business.
Account Payable
T OR F
Most accounting systems are designed to record liabilities for purchase of goods when the goods are received.
TRUE
Are terms or favor given by the seller to a buyer to encourage an early payment of the account owed.
Cash Discounts/Purchase Discounts
2% discount if paid within 10 days, net due in 30 days
2/10, n/30
1% discount if paid within 10 days, net due in 30 days
1/10, n/30
2% discount if paid within 10 days, net due in the 10th day after the end of the month.
2/10, n/10 EOM
2 methods in accounting for cash discounts
A. Gross Method
B. Net Method
In this method, the entity would initially record purchases account and accounts payable at full invoice price. Purchase Discount is only recorded if the entity paid the amount owed within discount period.
Gross Method
In this method, the entity would initially record the purchases account and accounts payable at net invoice price.
Net Method
Are articles of value such as toys, dishes, silverware, and other goods given to customers as result of past or sales promotion activities.
Premiums
Many entities use this program to establish brand faithfulness, increase sales volume, and retain valuable customers.
Customer Loyalty Program
This program is usually done by providing customers with awards or corresponding points for every purchase made.
Customer Loyalty Program
T OR F
Under IFRS 15 Revenue from Contracts with Customers, the revenue from contracts with customers shall be recognized when the entity satisfies the performance obligation.
TRUE
Is a promise made by a seller to a buyer to correct experienced with a product’s quality, quantity, or performance. It is commonly used by manufacturers to promote sales.
Warranty (Product Guarantee)
2 approaches followed in accounting warranty cost
A. Accrual Approach
B. Expense as Incurred Approach
This approach has the soundest theoretical support because it properly matches cost with revenue.
Accrual Approach
This approach of expensing warranty cost only when actually incurred. This approach is popular in practice because it is the one recognized for income tax purposes and frequently justified based on expediency when warranty cost is not very substantial or warranty period is relatively short.
Expense as Incurred Approach
Consist of cash or property received from customers but which are refundable after compliance with certain conditions.
Refundable deposits
This scheme has the main purpose of motivating officers and employees by directly relating their well-being to the success of the entity.
Bonus Computation
4 variations in computing for bonus. It can be percent of income:
- Before Bonus and Before Tax (BB&BT)
- Before Bonus and After Tax (BB&AT)
- After Bonus but Before Tax (AB but BT)
- After Bonus and After Tax (AB&AT)
