ACCTNG 2400 1st Edition Lecture 15 Outline of Last Lecture I. More on DividendsII. Order of statement preparation reviewIII. Temporary AccountsIV. Closing journal entriesOutline of Current Lecture V. Chapter 6: financial reporting for merchandise salesa. Types of businessi. Serviceii. Merchandisingiii. Manufacturingb. Credit sales reductionCurrent LectureTypes of business:Service – companies provide services directly, with little (if any) physical product provided (ex: hair stylist, house cleaning, etc.)- Revenues are earned by doing something (providing a service)- Expenses are incurred by receiving services or using up assetsMerchandising – companies buy a variety of products from manufacturers or distributers, enabling customers to conveniently select and purchase the product they want (ex: grocery stores, amazon.com, etc.)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.- Revenues are earned by providing a product to a customero Merchandisers buy products, usually hold them for a while, then sell them to customerso Objects held for later sale to customers are called inventory (an asset)- Expenses are incurred by transferring ownership of inventory to a customer (Cost of Goods Sold [COGS]), or receiving services or using up assetsCredit Sales ReductionGeneral approaches – don’t reduce original revenue recorded; use a contra-revenue or expense account, and reduce accounts receivable.Return – customer returns product for a refund Allowance – customer gets a partial refund as compensation for a quality defect (instead of a return)- Returns and allowances use a contra-revenue account called “sales returns and allowances”Cash discount – seller offers the customer a payment discount for early payment- Use a contra-revenue account called “sales discounts”Bad Debts – credit customer is unable to pay the amount it owes- Use an expense account called “bed-debt
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