ACC 221 1st Edition Lecture 18 Outline of Previous Lecture Section 17 Account Receivables and Sales Calculating net revenue o Discounts returns and allowance Uncollectable Accounts o Allowance v direct write off method Company impact o Collection period and turnover Estimating uncollectable accounts o Percentage of credit sales Outline of Current Lecture Section 18 Revenue and Inventory Accounts Chapter 5 cont Revenue Accounts o Sales Discounts o Sales returns and allowance Chapter 6 Inventory Accounts o Inventory o Inventory in and out of accounts Current Lecture Section 18 Revenue and Inventory Accounts Chapter 5 cont Revenue Accounts o Sales Discounts 2 10 net 30 Translates as 2 off if paid within 10 days if not the payment is due within 30 days Transaction o Dr Accounts Receivable 100 Cr Sales Revenue 100 Paid within 10 days o Dr Cash 98 Dr Sales Discount 2 Cr Accounts receivable 100 o When customers pay the 98 their entire accounts receivable balance is paid off If customer does not pay within 10 days o Dr Cash 100 Cr Accounts Receivable 100 These 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 Returns o Buying the product on credit Dr Accounts receivable Cr Sales Revenue o Returning for full refund Dr Sales returns and allowances Cr Accounts receivable Allowance o Buying the product on credit Dr Accounts receivable 100 Cr Sales Revenue 100 o Product faulty but customer wishes to keep it grant 20 allowance Dr Sales returns and allowances 20 Cr Accounts receivable 20 o Customer pays off credit balance Dr Cash 80 Cr Accounts receivable 80 Chapter 6 Inventory Account o 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 transaction o 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 sold unless 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 breaks
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