Vous êtes sur la page 1sur 39

Reporting and Interpreting Sales

Revenue, Receivables, and Cash


Chapter 6

McGraw-Hill/Irwin

2009 The McGraw-Hill Companies, Inc.

Accounting for Sales Revenue


The revenue principle requires that
revenues be recorded when earned:

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

Credit Card Sales


Companies
Companies accept
accept credit
credit cards
cards for
for several
several reasons:
reasons:
1.
1. To
To increase
increase sales.
sales.
2.
2. To
To avoid
avoid providing
providing credit
credit directly
directly to
to customers.
customers.
3.
3. To
To avoid
avoid losses
losses due
due to
to bad
bad checks.
checks.
4.
4. To
To avoid
avoid losses
losses due
due to
to fraudulent
fraudulent credit
credit card
card sales.
sales.
5.
5. To
To receive
receive payment
payment quicker.
quicker.

When credit card sales


are made, the company
must pay the credit card
company a fee for the
service it provides.
6-3

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

Read as: Two ten, net thirty


6-4

To Take or Not Take the Discount


With
With discount
discount terms
terms of
of 2/10,n/30,
2/10,n/30, aa customer
customer
saves
saves $2
$2 on
on aa $100
$100 purchase
purchase by
by paying
paying
on
on the
the 10
10thth day
day instead
instead of
of the
the 30
30thth day.
day.
Interest Rate for 20 Days =

Amount Saved
Amount Paid

Interest Rate for 20 Days =

$2
$98

Annual Interest Rate =

= 2.04%

365 Days 2.04% = 37.23%


20 Days
6-5

Sales Returns and Allowances


Debited for damaged
merchandise.
Debited for returned
merchandise.
Contra revenue
account.
6-6

Reporting Net Sales


Companies
Companies record
record credit
credit card
card discounts,
discounts,
sales
sales discounts,
discounts, and
and sales
sales returns
returns and
and
allowances
allowances separately
separately to
to allow
allow management
management
to
to monitor
monitor these
these transactions.
transactions.

6-7

Gross Profit Percentage


Gross Profit
Percentage

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

Measuring and Reporting Receivables


When
When companies
companies allow
allow customers
customers to
to purchase
purchase
merchandise
merchandise on
on an
an open
open account,
account, the
the
customer
customer promises
promises to
to pay
pay the
the company
company in
in the
the
future
future for
for the
the purchase.
purchase.

Accounts Receivable

Trade receivables are


amounts owed to the
business for credit sales of
goods, or services.

Nontrade receivables are


amounts owed to the
business for other than
business transactions.
6-9

Accounting for Bad Debts


Bad
Bad debts
debts result
result from
from credit
credit customers
customers who
who will
will not
not pay
pay
the
the business
business the
the amount
amount they
they owe,
owe, regardless
regardless of
of
collection
collection efforts.
efforts.

Bad Debt Expense


Matching Principle

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

Recording Bad Debt Expense


Estimates
Deckers
Deckers estimated
estimated bad
bad debt
debt expense
expense
for
for 2006
2006 to
to be
be $4,685,000.
$4,685,000.
Prepare
Prepare the
the adjusting
adjusting entry.
entry.
Bad Debt Expense is normally classified as a selling
expense and is closed at year-end.

Contra asset account

6-11

Allowance for Doubtful Accounts


Balance Sheet Disclosure
Accounts
Accounts receivable
receivable
Less:
Less: Allowance
Allowance for
for doubtful
doubtful accounts
accounts
Net
Netrealizable
realizablevalue
valueof
ofaccounts
accounts receivable
receivable

Amount the business


expects to collect.
6-12

Writing Off Uncollectible Accounts


When
When it
it is
is clear
clear that
that aa specific
specific customers
customers
account
account receivable
receivable will
will be
be uncollectible,
uncollectible, the
the
amount
amount should
should be
be removed
removed from
from the
the Accounts
Accounts
Receivable
Receivable account
account and
and charged
charged to
to the
the
Allowance
Allowance for
for Doubtful
Doubtful Accounts.
Accounts.

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

Writing Off Uncollectible Accounts


Assume
Assume that
that before
before the
the write-off,
write-off, Deckers
Deckers Accounts
Accounts
Receivable
Receivable balance
balance was
was $62,640,000
$62,640,000 and
and the
the Allowance
Allowance for
for
Doubtful
Doubtful Accounts
Accounts balance
balance was
was $13,069,000.
$13,069,000. Lets
Lets see
see what
what
effect
effect the
the total
total write-offs
write-offs of
of $6,969,000
$6,969,000 had
had on
on these
these accounts.
accounts.

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

Estimating Bad Debts Percentage of


Credit Sales
Bad debt percentage is based on
actual uncollectible accounts from
prior years credit sales.
Focus is on determining the amount to record
on the income statement as
Bad Debt Expense.

Net
Net credit
credit sales
sales
%
% Bad
Bad debt
debt loss
loss rate
rate
Amount
Amount of
of journal
journal entry
entry
6-15

Percentage of Credit Sales


In
In 2008,
2008, Kids
Kids Clothes
Clothes had
had credit
credit sales
sales of
of
$600,000.
$600,000. Past
Past experience
experience indicates
indicates that
that bad
bad
debts
debts are
are one
one percent
percent of
of sales.
sales. What
What is
is the
the
estimate
estimate of
of bad
bad debts
debts expense
expense for
for 2008?
2008?
$600,000 .01 = $6,000

Now, prepare the adjusting entry.

6-16

Estimating Bad Debts Aging of Accounts


Receivable
Focus is on determining the desired
balance in the Allowance for Doubtful
Accounts on the balance sheet.

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

Based on past experience, the business estimates the percentage


of uncollectible accounts in each time category. These percentages
are then multiplied by the appropriate column totals.

6-18

Aging Schedule

The column totals are then added to arrive at the


total estimate of uncollectible accounts of $1,201.
Record the Dec. 31, 2008, adjusting entry assuming that
the Allowance for Doubtful Accounts currently has a
$50 credit balance.
6-19

Aging of Accounts Receivable

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

Aging of Accounts Receivable


Allowance for Doubtful Accounts

Notice that the balance


after adjustment is equal
to the estimate of $1,201
based on the aging
analysis performed
earlier.

6-21

Aging of Accounts Receivable

--

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

This ratio measures how many times average


receivables are recorded and collected for the year.
Deckers reported 2006 net sales of $304,423,000.
December 31, 2005, receivables were $39,683,000 and
December 31, 2006, receivables were $49,571,000.
Receivables
$304,423,000
= 6.8
Turnover = ($39,683,000 + $49,571,000) 2

6-23

Focus on Cash Flows


Add Decrease
in Accounts
Receivable
Sales
Revenue
Subtract
Increase in
Accounts
Receivable

Cash Collected
from
Customers

6-24

Cash and Cash Equivalents


Checks

Money
Orders

Cash and
Cash
Equivalents
Certificates
of Deposit

Bank Drafts
T-Bills
6-25

Internal Control of Cash


Internal control refers to policies and procedures designed to:
Properly
account for
assets.

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

Internal Control of Cash


Bank
Reconciliations
Daily
Deposits

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

Balance per Book


+ Deposits by Bank
(credit memos)
- Service Charge
- NSF Checks
Book Errors
= Correct Balance
6-28

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

Balance per Book


+ Deposits by Bank
(credit memos)
- Service Charge
- NSF Checks
Book Errors
= Correct Balance
6-29

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

Ending book balance, July 31


Additions:
Interest
Deductions:
Recording error
$
NSF check
Correct cash balance

$ 7,430

500

2,903
$ 7,207

30
28
225

253
$ 7,207
6-32

Bank Reconciliation

6-33

Chapter Supplement A Recording


Discounts and Returns
On
On January
January 2,
2, aa Deckers
Deckers factory
factory stores
stores credit
credit card
card
sales
sales were
were $3,000.
$3,000. The
The credit
credit card
card company
company charges
charges
aa 3%
3% service
service fee.
fee.
Credit Card Discounts are reported
as a contra-revenue account.

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.

$1,000 2% = $20 sales discount


$1,000 - $20 = $980 cash receipt

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

Sales Returns and Allowances


On
On July
July 8,
8, before
before paying,
paying, aa customer
customer returns
returns $500
$500 of
of
sandals
sandals originally
originally purchased
purchased on
on account
account from
from
Deckers.
Deckers. The
The sandals
sandals originally
originally cost
cost Deckers
Deckers $300.
$300.
Prepare
Prepare the
the Deckers
Deckers journal
journal entry.
entry.

6-38

End of Chapter 6

McGraw-Hill/Irwin

2009 The McGraw-Hill Companies, Inc.

Vous aimerez peut-être aussi