ACC 221 1st Edition Lecture 18 Outline of Previous Lecture- Section 17: Account Receivables and Sales Calculating net revenueo Discounts, returns, and allowance Uncollectable Accountso Allowance v. direct write-off method Company impacto Collection period and turnover Estimating uncollectable accountso Percentage-of-credit salesOutline of Current Lecture - Section 18: Revenue and Inventory Accounts Chapter 5 cont. – Revenue Accountso Sales Discountso Sales, returns, and allowance Chapter 6 – Inventory Accountso Inventoryo Inventory in and out of accountsCurrent Lecture- Section 18: Revenue and Inventory Accounts Chapter 5 cont. – Revenue Accountso Sales Discounts 2/10 net 30- Translates as 2% off if paid within 10 days, if not, the payment is due within 30 days- Transactiono Dr. Accounts Receivable $100, Cr. Sales Revenue $100- Paid within 10 dayso Dr. Cash $98, Dr. Sales Discount $2, Cr. Accounts receivable $100o When customers pay the $98, their entire accounts receivable balanceis paid off. - If customer does not pay within 10 dayso Dr. Cash $100, Cr. Accounts Receivable $100These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute. Sales Discount account is a temporary contra revenue account with a normal debit balance- Separate out the sales discounts because we want to keep track of how many people are taking advantage of the discount and whether or not it is worth it for the company to keep utilizing it.o Sales, returns, and allowances These are all combined into one contra revenue account Keep track, because we want to know how often customers return our product; shows that the company did work, but did not receive the profit because the customer returned- Returnso Buying the product on credit Dr. Accounts receivable, Cr. Sales Revenueo Returning for full refund Dr. Sales, returns, and allowances, Cr. Accounts receivable - Allowanceo Buying the product on credit Dr. Accounts receivable $100, Cr. Sales Revenue $100o Product faulty, but customer wishes to keep it; grant $20 allowance Dr. Sales, returns, and allowances $20, Cr. Accounts receivable $20o Customer pays off credit balance Dr. Cash $80, Cr. Accounts receivable $80 Chapter 6 – Inventory Accounto Inventory – an asset we intend to sell, only exists within merchandising company Sell inventory- Dr. Expense cost of goods sold, Cr. Inventory Boy additional inventory- Dr. inventory, Cr. Cash Perpetual inventory system – continuously updating the inventory, lower inventory immediately right after customer purchases Period inventory system – updating the inventory levels at the end of the accounting period. Don’t makes sales entry every time, but continue to make the purchasing entries when buying inventory Goods available for sale – at the end of the accounting cycle, all of the additional inventory purchases will make up the balance, which is the inventory that is available to be purchased by a customer- Last day of the cycle, we will record all inventory purchased as a single transactiono Inventory in and out of accounts FIFO – First in, First out- The one waiting the longest is first to be sold; eliminates inventory from getting hung up LIFO – Last in, first out- The one waiting for the shortest amount of time is taken out and sold first- Changes the dollar value of the inventory, the first in line will never be soldunless all units are sold, creates hang ups for inventory, will become outdated- Doesn’t make much sense, most do not operate with this Accounting system- The physical flow is usually FIFO- However, the physical flow does not have to match the accounting system flow; physical may be FIFO, accounting system may be LIFO, as they may receive tax
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