Help
Options
Didn't know it?
click below
click below
Knew it?
click below
click below
Don't Know
Remaining cards (0)
Know
retry
shuffle
restart
0:00
Embed Code - If you would like this activity on your web page, copy the script below and paste it into your web page.
Normal Size Small Size show me how
Normal Size Small Size show me how
Financial Accounting
Financial Accounting Unit 5
| Question | Answer |
|---|---|
| What three events commonly reduce a company’s gross revenue? | Sales discounts, returns, and allowances. |
| What is a sales discount? | A reduction in price offered to customers for early payment. |
| What does the term 2/10, n/30 mean? | 2% discount if paid within 10 days; full payment due in 30 days. |
| What is the journal entry when a customer takes a sales discount? | Debit Cash (amount received) Debit Sales Discounts Credit Accounts Receivable (original amount) |
| What is a sales return? | When a customer sends back merchandise after purchase. |
| What is a sales allowance? | A price reduction granted due to product issues, without a return. |
| What is the journal entry for a $150 return? | Debit Sales Returns and Allowances $150 Credit Cash or Accounts Receivable $150 |
| What are contra-revenue accounts? | Accounts that reduce total revenue, including Sales Discounts and Sales Returns & Allowances. |
| Do contra-revenue accounts have debit or credit balances? | Debit balances. |
| How do contra-revenue accounts affect the income statement? | They reduce gross sales to calculate net sales. |
| How is net sales revenue calculated? | Gross Sales – Sales Returns – Sales Discounts |
| Why track contra-revenue accounts internally? | To monitor customer satisfaction, returns, quality issues, and sales performance. |
| What do companies like Walmart report publicly: gross or net sales? | Net sales only. |
| Define gross sales. | Total billed sales before any deductions. |
| Define net sales. | Gross sales minus sales returns and discounts. |
| What is the revenue recognition criterion? | Revenue is recognized when work is substantially complete and payment is received or reasonably assured. |
| How does accrual accounting affect revenue recognition? | Revenue is recorded when earned, not when cash is received. |
| What regulatory standard governs U.S. revenue recognition? | ASC 606 |
| What is a multi-element transaction example? | An iPhone sold with software updates delivered over time. |
| What reduces revenue on financial statements? | Sales Discounts, Sales Returns, and Sales Allowances tracked through contra-revenue accounts. |
| If the payment terms are 3/15, n/60, what is meant by the “3/15”? | 3% discount if payment is made within 15 days |
| Why do companies estimate bad debt expense in the same period as the sale? | To comply with the matching principle and report expenses in the same period as related revenue. |
| What are the two main types of receivables? | Accounts Receivable (informal) and Notes Receivable (formal, interest-bearing). |
| Why is the Direct Write-Off Method not GAAP-compliant? | Because it violates the matching principle by recognizing expense only when uncollectibility is confirmed. |
| What is the Allowance Method? | A GAAP-compliant approach that estimates uncollectible accounts in the same period as sales. |
| What is the journal entry to estimate bad debts using the Allowance Method? | Debit: Bad Debt Expense Credit: Allowance for Bad Debts |
| What is the journal entry to write off a specific bad account? | Debit: Allowance for Bad Debts Credit: Accounts Receivable |
| What are the two steps to recover a written-off account? | Reinstate A/R: Debit: Accounts Receivable Credit: Allowance for Bad Debts Record payment: Debit: Cash Credit: Accounts Receivable |
| What is the Percentage of Receivables method? | A balance sheet approach that estimates the ending Allowance for Bad Debts based on A/R balance. |
| How do you calculate Bad Debt Expense using the Percentage of Receivables method? | Bad Debt Expense = Target Allowance – Adjusted Beginning Allowance |
| What type of account is the Allowance for Bad Debts? | A contra-asset account that reduces Accounts Receivable. |
| What happens to Net A/R when a write-off occurs? | It stays the same, because both A/R and Allowance are reduced by the same amount. |
| Why do write-offs not affect expense? | Because the expected loss was already recorded through an earlier estimate. |
| What does Net Accounts Receivable represent? | The realistic amount expected to be collected: A/R – Allowance for Bad Debts |
Created by:
heavenlypure
Popular Accounting sets