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ACCT Test #3

Covers Chapter 5/6

TermDefinition
Revenue Recognition Principle Knowing when to recognize revenue and how much to recognize.
How to know how much revenue should be recognized 1. Identify performance obligations with customer. 2. Identify contracts with customer. 3. Determine the transaction price. 4. Allocate the transaction price to the performance obligations in the contract. 5. Recognize as satisfied
Merchandising firms recognize revenue depending on if they use FOB Shipping Point: Legal Title transfers to buyer when goods are given to common carrier; Buyer pays shipping FOB Destination: Legal Title transfers when goods reach destination; Seller pays shipping.
Credit Card Sales are journaled as Cash XXX CC Discount Expense XXX Sales Revenue XXX
Sales Allowances Instead of returning goods, customer keeps them and firm gives them refund credit.
Sales Returns and Allowances Has a Normal Debit Balance (Contra Revenue Account). It is entered at the end of period with an AJE.
Sales Returns and Allowances are journaled as Sales Returns + Allowances XXX Sales Refunds Payable XXX Inventory Returns Estimated XXX Cost of Goods Sold XXX
Sales Discounts are A percentage discount off the sales price offered as an incentive to pay Accounts Receivable early.
Sales Discounts have a normal Debit balance (Contra Revenue Account).
Sales Discounts are journaled as Cash XXX Sales Discount XXX Accounts Receivable XXX
Net Sales Formula All Sales Revenue - Sales Returns and Allowances -Sales Discounts =Net Sales (All sales - contra sales accounts)
Allowance for uncollectible accounts Amount of Accounts receivable that firm expects to not collect.
Net Realizable Vale Formula Accounts Receivable - Allowance for Uncollectable Accounts.
Bad Debt Expense is recorded at the end of period to estimate credit losses by Bad Debt Expense XXX Allowance for Uncollectable Accounts XXX
Once officially deemed uncollectable, Write offs are journaled as Allowance for Uncollectable Accounts XXX Accounts Receivable XXX
Balance Sheet method to estimate uncollectable accounts Shows ending Allowance for Uncollectable Accounts *Estimate % of ending AR *Calculate BDE=Difference between unadjusted AUA & end AUA
Aging of Receivables Uses the age of Accounts Receivable to estimate ending AUA
Notes Receivable is journaled as (lending money example earning 10% interest a month) Note Receivable XXX Cash XXX Interest Receivable XXX Interest Revenue XXX
The cost of inventory on hand is equal to Inventory (Asset)
The cost of inventory that's been sold is Cost of Goods Sold
Gross Profit/Gross Margin is The excess of revenue over cost.
"Gross" means that Operating expenses have not been subtracted yet- only COGS
Periodic Inventory System Inventory is counted during specific periods by hand.
Perpetual Inventory System Inventory is continually updated using a computerized system.
Net Purchases Equation Purchases + Freight in (cost to transport good from seller to buyer) -Purchase Discounts -Purchase allowances = Net Purchases
Cost of Goods Sold Equation Beginning Inventory +Net Purchases =Goods Available for Sale -Ending Inventory =COGS
Account for purchase discounts that OUR firm receives. Journaled as: Ex. Payed off A.P. for inventory we bought Accounts Payable XXX Inventory XXX (amount of the purchase discount) Cash XXX
Account for purchase returns and allowances that OUR firm returns. Journaled as: Ex. Returning unsatisfactory goods that we received. Accounts Payable XXX Inventory XXX
Average Cost Inventory Cost Flow Method Determines weighted average cost per unit based on goods available of sale. Weighted AVG= Goods available for sale $$/Goods available for sale Units Then multiply Goods available for sale and Ending inventory by weighted average.
FIFO Inventory Cost Flow Method Assumes that first ones the company bought are the first ones the company sold.
Created by: RICHBOYJUBZ
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