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McGraw-Hill/Irwin
Goods
Goods or
or services
services
have
have been
been delivered.
delivered.
Amount
Amount of
of customer
customer
payments
payments known.
known.
Collection
Collection is
is
reasonably
reasonably assured.
assured.
6-2
Sales Discounts
When customers purchase on open account,
they may be offered a sales discount to
encourage early payment.
2/10, n/30
Discount
Percentage
# of Days in
Discount
Period
Otherwise, the
Full Amount Is
Due
Maximum Days
in Credit Period
Amount Saved
Amount Paid
$2
$98
= 2.04%
6-7
Gross Profit
Net Sales
In
In 2006,
2006, Deckers
Deckers reported
reported gross
gross profit
profit of
of
$141,199,000
$141,199,000 on
on sales
sales of
of $304,423,000.
$304,423,000.
Gross Profit
Percentage
$141,399,000
$304,423,000
46.4%
Other
Other things
things equal,
equal, higher
higher gross
gross profit
profit results
results in
in higher
higher net
net income.
income.
6-8
Accounts Receivable
Record in same
accounting period.
Sales Revenue
Most
Most businesses
businesses record
record an
an estimate
estimate of
of the
the bad
bad
debt
debt expense
expense
with
with an
an adjusting
adjusting entry
entry at
at the
the end
end of
of the
the
accounting
accounting period.
period.
6-10
6-11
Deckers
Deckers total
total write-offs
write-offs for
for 2006
2006 were
were
$6,969,000.
$6,969,000.
Prepare
Prepare aa summary
summary journal
journal entry
entry for
for these
these
write-offs.
write-offs.
6-13
The
The total
total write-offs
write-offs of
of $6,969,000
$6,969,000 did
did not
not change
change the
the net
net
realizable
realizable value
value nor
nor did
did itit affect
affect any
any income
income statement
statement accounts.
accounts.
6-14
Net
Net credit
credit sales
sales
%
% Bad
Bad debt
debt loss
loss rate
rate
Amount
Amount of
of journal
journal entry
entry
6-15
6-16
Each
Each customers
customers account
account is
is aged
aged by
by
breaking
breaking down
down the
the balance
balance by
by
showing
showing the
the age
age (in
(in number
number of
of days)
days)
of
of each
each part
part of
of the
the balance.
balance.
An
An aging
aging of
of accounts
accounts receivable
receivable for
for
Kids
Kids Clothes
Clothes in
in 2008
2008 might
might look
look like
like
this
this .. .. ..
6-17
Aging Schedule
6-18
Aging Schedule
1,201
1,201
-50
50
$$ 1,151
1,151
Desired
Desired Balance
Balance After posting, the
Allowance
Credit
Balance
Credit Balance
account would
Adjusting
Adjusting Entry
Entry
look like this . . .
6-20
6-21
--
Accounts
Accounts Receivable
Receivable
%
% Estimated
Estimated Uncollectible
Uncollectible
Desired
Desired Balance
Balance in
in Allowance
Allowance Account
Account
Allowance
Allowance Account
Account Credit
Credit Balance
Balance
Amount
Amount of
of Journal
Journal Entry
Entry
Accounts
Accounts Receivable
Receivable
%
% Estimated
Estimated Uncollectible
Uncollectible
Desired
Desired Balance
Balance in
in Allowance
Allowance Account
Account
++ Allowance
Allowance Account
Account Debit
Debit Balance
Balance
Amount
Amount of
of Journal
Journal Entry
Entry
6-22
Receivables Turnover
Receivables
Turnover =
Net Sales
Average Net Trade Receivables
6-23
Cash Collected
from
Customers
6-24
Money
Orders
Cash and
Cash
Equivalents
Certificates
of Deposit
Bank Drafts
T-Bills
6-25
Safeguard
assets.
Ensure the
accuracy of
financial
records.
Cash
Cash is
is the
the asset
asset most
most susceptible
susceptible to
to theft
theft and
and fraud.
fraud.
Recording
Separation
of Duties
Custody
Authorization
6-26
Cash
Controls
Payment
Approval
Purchase
Approval
Check
Signatures
Prenumbered
Checks
6-27
Bank Reconciliation
Explains the difference between cash reported on bank
statement and cash balance on companys books and
provides information for reconciling journal entries.
Balance per Bank
+ Deposits in Transit
- Outstanding Checks
Bank Errors
= Correct Balance
Bank Reconciliation
Explains the difference between cash reported on bank
statement and cash balance on companys books and
provides information for reconciling journal entries.
per Bank
AllBalance
reconciling
items on the
+ Deposits in Transit
book side
- Outstanding
requireChecks
an
adjusting
Bank Errors
entry to the
= Correctaccount.
Balance
cash
Bank Reconciliation
Prepare
Prepare aa July
July 31
31 bank
bank reconciliation
reconciliation
statement
statement and
and the
the resulting
resulting journal
journal entries
entries
for
for the
the Simmons
Simmons Company.
Company. The
The July
July 31
31
bank
bank statement
statement indicated
indicated aa cash
cash balance
balance of
of
$9,610,
$9,610, while
while the
the cash
cash ledger
ledger account
account on
on
that
that date
date shows
shows aa balance
balance of
of $7,430.
$7,430.
Additional
Additional information
information necessary
necessary for
for the
the
reconciliation
reconciliation is
is shown
shown on
on the
the next
next page.
page.
6-30
Bank Reconciliation
Outstanding
Outstanding checks
checks totaled
totaled $2,417.
$2,417.
A
A $500
$500 check
check mailed
mailed to
to the
the bank
bank for
for deposit
deposit had
had
not
not reached
reached the
the bank
bank at
at the
the statement
statement date.
date.
The
The bank
bank returned
returned aa customers
customers NSF
NSF check
check for
for $225
$225
received
received as
as payment
payment of
of an
an account
account receivable.
receivable.
The
The bank
bank statement
statement showed
showed $30
$30 interest
interest earned
earned on
on
the
the bank
bank balance
balance for
for the
the month
month of
of July.
July.
Check
Check 781
781 for
for supplies
supplies cleared
cleared the
the bank
bank for
for $268
$268
but
but was
was erroneously
erroneously recorded
recorded in
in our
our books
books as
as $240.
$240.
A
A $486
$486 deposit
deposit by
by Acme
Acme Company
Company was
was erroneously
erroneously
credited
credited to
to our
our account
account by
by the
the bank.
bank.
6-31
Bank Reconciliation
Ending bank balance, July 31
Additions:
Deposit in transit
Deductions:
Bank error
$
486
Outstanding checks
2,417
Correct cash balance
$ 9,610
$ 7,430
500
2,903
$ 7,207
30
28
225
253
$ 7,207
6-32
Bank Reconciliation
6-33
6-34
Sales Discounts
On
On January
January 6,
6, Deckers
Deckers sold
sold $1,000
$1,000 of
of merchandise
merchandise on
on
credit
credit with
with terms
terms of
of 2/10,
2/10, n/30.
n/30.
Prepare
Prepare the
the Deckers
Deckers journal
journal entry.
entry.
6-35
Sales Discounts
On
On January
January 14,
14, Deckers
Deckers receives
receives the
the appropriate
appropriate
payment
payment from
from the
the customer
customer for
for the
the January
January 66 sale.
sale.
Prepare
Prepare the
the Deckers
Deckers journal
journal entry.
entry.
Contra-revenue account
6-36
Sales Discounts
IfIf the
the customer
customer remits
remits the
the appropriate
appropriate amount
amount
on
on January
January 20
20 instead
instead of
of January
January 14,
14, what
what entry
entry
would
would Deckers
Deckers make?
make?
Since the customer paid outside of the discount
period, a sales discount is not granted.
6-37
6-38
End of Chapter 6
McGraw-Hill/Irwin