Lesson 6 (Accounts Receivable) Flashcards
Which financial statement accounts are affected by the sale of product on the income statement ?
- sales revenue
- cost of goods sold
Which financial statement accounts are affected by the sale of a product in the balance sheet ?
- accounts receivable
- inventory
The realization principle states record revenue when ?
- the earnings process is complete or virtually compete
- there is reasonable certainty as to the collectability of the asset to be received
The earning process is considered complete in the realization principle when ?
goods are sold or when services are performed, even if cash is not collected at the time the good is sold or service performed
If the sale of goods or performance of services occurs prior to the receipt of cash what is it called ?
an accrued revenue and an account receivable is recorded
represents revenue earned from selling inventory ?
sales revenue
Two adjustments to sales revenue are ?
- sales returns & allowances
- sales discounts
result when customers are dissatisfied with merchandise and are allowed to return the goods to the seller for a credit or a refund ?
sales returns
result when customers are dissatisfied with merchandise and the seller allows a reduction from the selling price. goods are not returned in this case ?
salles allowances
offer of a cash discount to a credit customer for the prompt payment of a balance due ?
Ex: 3/10, n/30 or read ‘three, ten, net, thirty’
sales discount
What does 3/10, n/30 mean ?
read as ‘three, ten, net, thirty
It means a 3% discount is allowed on all payments made within 10 days. After 10 days there is no discount available, and the remaining balance is due in 30 days
sales returns & allowances and sales discounts are both classified as what accounts ?
contra revenue accounts
(so their normal balance will be on the debit side)
Sales returns & allowances and sales discounts result in what on the income statement ?
a decrease to revenues (specifically sales revenue)
because sales returns & allowances and sales discounts are contra revenue accounts the Normal balance will be on what side ?
debit side
represents cash owed to the company ?
accounts receivable