Chapter 04 Revenue Flashcards
What is income?
Income is an increase in economic benefits encompassing both revenue & gains
What is revenue?
Revenue is income arising in the course of the entity’s ordinary course of business
What are gains?
Gains represent other items that meets the definition of income, normally is not included in the company’s main operations
When should a company recognise revenue?
A company has to recognise revenue when
1) There is a transfer of good or services to the customer.
2) The amount reflects the consideration expected in exchange for the goods or services
What are the steps required in revenue recognition?
1) Identify the contract between both parties
2) Identify the separate performance obligation in the contract
3) Determine the transaction price
4) Allocate transaction price to separate performance obligation
5) Recognise revenue when each performance obligation is satisfied
What is the concept of sales on credit?
Sales on credit allows customers to pay for purchases at a later date. It serves as a kind of financing?
How does this sales discount work?
2/10 , n/30
2% Discount if paid within 10 days.
Otherwise, the full amount is to be paid within 30 days.
On 6th Jan, ABC PTE LTD sold $1000 of merchandise on credit with terms: 2/10, n/30.
What are the entries?
DR Account receivable 980
CR Sales Revenue 980
What happens if the company decides to make payment during the discount period?
DR Cash 980
CR Account Receivable 980
What happens if payment is made after discount period ends?
DR Cash 1000
CR Account Receivable 980
CR Revenue 20
What are the journal entries for credit cards?
On 19 Jan, ABC PTE LTD sold goods for $3000 to its clients through the use of credit cards with a 2% expense fee.
DR Account Receivable 2940
DR Credit Card Expense 60
CR Sales Revenue 3000
What are sales with right of returns?
The entity transfer the control of product to customer and grants the customer the right to return the product.
What happens on return of products?
On return, the customer may receive any compensation such as
1) full or partial refund
2) credit against any amount owed
3) Another product in exchange
What are the journal entries for the scenario:
ABC LTD sold $5000 worth of goods to XYZ. ABC estimates that of the $5000 goods sold, $1000 of it will be returned. The COGS is $3000
DR Account Receivable 5000
CR Revenue 4000
CR Refund Liability 1000
DR COGS(4/5) * 3000 = 2400
DR Recoverable Asset 600
CR Inventory 3000
What is the concept of collection on behalf of third parties? [GST etc]
During a sales transaction, only an entity may collect on behalf of a third party.
Amount collected must be by the third party AND NOT BY COMPANY (GST collected by Govt)
