section 5 Flashcards
Net Sales Revenue
gross sales revenue less any contra revenues, which are reductions in revenue
What kind of account is Sales discounts?
Contra-Revenue
Is sales discount a real or nominal account?
nominal
Why is a contra revenue account used rather than debiting sales revenues directly?
better information for management
Can a nominal account have a beginning balance?
no
What kind of account has a beginning balance?
real
Revenues
the amount of inflowing assets from the sale of goods or services
Timing
Revenues are to be recognized by the company and reported on the income statement when a PERFORMANCE OBLIGATION has been satisfied
Performance Obligation
a contract to provide a product or service to a customer
2 contra revenue examples
sales discount & sales returns and allowances
What is Gross Margin
NET sales revenue — COGS (net sales rev MINUS cost of goods sold)
What kind of account is Bad Debt Allowance?
contra asset
2 approaches to estimate the amount of bad debts
Income statement approach
balance sheet approach
income statement approach
% of credit sales
DIRECT method
balance sheet approach
% or aging of Accounts Receivable
INDIRECT METHOD
T/F Under GAAP revenues are to be recognized in the period in which those revenues are earned and not necessarily in the period in which cash is actually received
true
t/f Sales Discounts is a contra-revenue account that typically has a credit balance at the end of an accounting period
false
A customer return of used and worthless merchandise previously sold at a profit will reduce the merchandiser’s net income by
the amount of the original sales price of the merchandise
T/F under GAAP, the expense associated with the uncollectible accounts receivable is typically calculated and recorded based upon estimations of uncollectibilty
true
an overstatement of BDE in a particular year is typically corrected by
understating the expense in the following year
T/F the allowance for uncollectible accounts receivable account should always have a balance following year end adjusting entries that is equal to the amount of estimated uncollectible accounts receivable at year end
true
T/F if a merchandiser accepts valid customer VISA cards as payment for legitimate merchandise sales, the merchandiser will typically have some bad debt expense arising from such sales transactions
false
What kind of account is Deferred Revenue?
liability
date of sale journal entry
debit AR or Cash & COGS
credit SR & Inventory
An account that appears on the income statement is Real or Nominal?
Nominal and must be closed to retained earnings at the end of a period
2 examples of contra revenue accounts
sales discounts
sales returns and allowances
Why use contra revenue accounts?
to quickly distinguish info useful to management
is allowance for bad debt a real or nominal account?
real and has a cumulative running balance
Which accounts have a beginning balance, and are they a natural credit or natural debit balance? Accounts Receivable, Bad Debt Allowance, Bad Debt Expense
AR debit
BDA credit
Bad debt expense has a natural
debit balance
an Estimate Bad Debt Income statement approach
% of credit sales
DIRECT method
an Estimate of Bad Debt balance sheet approach
% or aging of AR
INDIRECT method
A credit balance in the Allowance for Uncollectible Accounts Receivable account at the end of the year prior to any adjusting entry for the current year’s uncollectible accounts receivable means the prior year’s estimated uncollectible accounts receivables were
overestimated
