Podcast
Questions and Answers
What journal entry is made to record a sales allowance of $200 due to defective merchandise?
What journal entry is made to record a sales allowance of $200 due to defective merchandise?
Debit Sales Returns and Allowances $200 and credit Accounts Receivable $200.
How does a sales allowance affect the Cost of Goods Sold (COGS)?
How does a sales allowance affect the Cost of Goods Sold (COGS)?
A sales allowance has no impact on COGS as inventory is not returned to the seller.
What is the normal balance of a Sales Returns and Allowances account?
What is the normal balance of a Sales Returns and Allowances account?
The normal balance of a Sales Returns and Allowances account is a debit.
Explain the journal entry for recognizing a sales discount of $20 on a $1,000 sale.
Explain the journal entry for recognizing a sales discount of $20 on a $1,000 sale.
What distinguishes cash sales from credit sales in terms of revenue recognition?
What distinguishes cash sales from credit sales in terms of revenue recognition?
What are the implications of offering credit terms, such as 'n/30', to customers?
What are the implications of offering credit terms, such as 'n/30', to customers?
Describe how sales returns and allowances can provide insights into the quality of merchandise.
Describe how sales returns and allowances can provide insights into the quality of merchandise.
What impact do sales discounts have on a company's gross sales?
What impact do sales discounts have on a company's gross sales?
What journal entry is made when Jay Corp records a cash sale of 100 units at $100 each on January 15th?
What journal entry is made when Jay Corp records a cash sale of 100 units at $100 each on January 15th?
How is the journal entry for a credit sale different from a cash sale?
How is the journal entry for a credit sale different from a cash sale?
What does 'Sales Returns and Allowances' refer to in the sales process?
What does 'Sales Returns and Allowances' refer to in the sales process?
What happens in the journal entries when cash is received for a credit sale?
What happens in the journal entries when cash is received for a credit sale?
Which account is debited when recording the sale of merchandise on credit?
Which account is debited when recording the sale of merchandise on credit?
What key difference separates cash sales from credit sales in terms of recording?
What key difference separates cash sales from credit sales in terms of recording?
When merchandise is sold and later returned, which account is typically credited?
When merchandise is sold and later returned, which account is typically credited?
In the T-account for cash sales, what is the total amount transferred to the Cash A/c in this case?
In the T-account for cash sales, what is the total amount transferred to the Cash A/c in this case?
What journal entries are recorded when Jay Corp receives cash of $10,000 from a customer?
What journal entries are recorded when Jay Corp receives cash of $10,000 from a customer?
When should revenue be recognized according to the revenue recognition principle?
When should revenue be recognized according to the revenue recognition principle?
What are the journal entries for the sale of 100 units of product at $100 each when the goods are transferred?
What are the journal entries for the sale of 100 units of product at $100 each when the goods are transferred?
How is the cost of goods sold recorded for 100 units purchased at $70 each?
How is the cost of goods sold recorded for 100 units purchased at $70 each?
What entries should be made when merchandise sold is returned by the buyer?
What entries should be made when merchandise sold is returned by the buyer?
What journal entries are needed to account for the return of 10 units at a cost of $70 each?
What journal entries are needed to account for the return of 10 units at a cost of $70 each?
What are the differences between cash sales and credit sales in terms of journal entries?
What are the differences between cash sales and credit sales in terms of journal entries?
How does recording sales returns affect inventory and cost of goods sold?
How does recording sales returns affect inventory and cost of goods sold?
Flashcards
Sales Allowance
Sales Allowance
A reduction in the selling price of goods due to defects or other issues.
Sales Returns and Allowances
Sales Returns and Allowances
A contra-revenue account that reduces sales revenue when goods are returned or allowances are granted.
Cost of Goods Sold
Cost of Goods Sold
The direct costs attributable to producing the goods sold by a business
Matching Principle
Matching Principle
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Accounts Receivable
Accounts Receivable
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Sales Discounts
Sales Discounts
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Sales Revenue Recognition
Sales Revenue Recognition
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Sales Returns
Sales Returns
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Contra-revenue account
Contra-revenue account
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Credit Terms
Credit Terms
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Inventory
Inventory
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Inventory
Inventory
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Cash Accounting
Cash Accounting
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Accounts Receivable
Accounts Receivable
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Journal Entry
Journal Entry
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Revenue Recognition
Revenue Recognition
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Cash Sales
Cash Sales
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Credit Sales
Credit Sales
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Sales on Credit Terms
Sales on Credit Terms
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T Account
T Account
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Study Notes
Sales Cycle
- Includes recording merchandise sales and cost of goods sold.
- Categorizes sales as cash sales and sales on credit.
- Subcategories of credit sales include sales returns and allowances, and sales discounts.
- Also includes freight.
Merchandise Sales - Revenue Recognition
- Revenue is recognized when the sale is recorded.
- The goods must be transferred to the buyer.
- The amount of the sale must be measurable.
- Payment must be reasonably assured.
Merchandise Sales - Example Transaction
- Jay Corp sells 100 units for $100 each on January 10th.
- Goods transferred on January 15th.
- Payment received on January 15th.
- Journal entry records the sale.
- Dr. Cash 10,000
- Cr. Sales 10,000
- T account entries for cash sales:
- Dr. Cash A/c 10,000
- Cr. Sales A/c 10,000
- T account entries for credit sales:
- Dr. Accounts Receivable A/c 10,000
- Cr. Sales A/c 10,000
Credit Sales - Cash Receipt
- Jay Corp receives $10,000 from customer within 30 days.
- Journal entry:
- Dr. Cash A/c 10,000
- Cr. Accounts Receivable A/c 10,000
Cost of Goods Sold
- Satisfies the matching principle.
- Recorded as an expense in the same period when merchandise is sold.
- Journal entry:
- Dr. Cost of Goods Sold
- Cr. Inventory
Merchandise Sales - Further Example
- Jay Corp purchased 100 units at $70 each.
- Journal entry records the sale.
- Dr. Inventory 7,000
- Cr. Cost of Goods Sold 7,000
Accounting for Sales Returns
- Merchandise is returned by buyer.
- Increases merchandise inventory and decreases cost of goods sold.
- Sales returns and allowances account is a contra-revenue account.
- Carries a normal debit balance.
- Example: Buyer returns 10 units.
- Journal entry:
- Dr. Sales Returns and Allowances 1,000
- Cr. Accounts Receivable 1,000
Accounting for Sales Allowances
- Merchandise is defective; seller offers a price reduction.
- Reduces gross sales, and accounts receivable.
- Sales Allowances account is a contra-revenue account.
- Example: 20 defective units at a $10 reduction each.
- Journal Entry:
- Dr. Sales returns and allowances 200
- Cr. Accounts receivable 200
Sales Discounts
- Incentive for early payment by credit customers.
- Contra revenue account linked to sales.
- Reduces gross sales.
- Example credit terms: n/30, 2/15.
- January 10th - Credit sale to customer.
- January 22nd - Customer pays.
- Cr. Sales discounts 20
- Dr. Cash 980
- Cr. A/R 1,000
Free On Board (FOB)
- FOB Shipping Point: Ownership transfers when inventory leaves the vendor. Buyer takes responsibility for loss, insurance, and transportation.
- FOB Destination Point: Ownership transfers when inventory reaches the customer. Seller responsible for loss, insurance, and transportation.
Freight Expenses
- Freight in = cost of shipping inventory purchased (adds to cost of inventory purchases).
- Freight out = cost of shipping inventory sold (adds to operating expenses).
- Journal entry:
- Dr. Inventory
- Cr. Cash or Accounts Payable
Net Sales
- Gross sales - sales returns and allowances - sales discounts = net sales
New Accounting Rules - Adjustments to Net Sales
- Net sales adjusted at year-end for estimated sales discounts, returns, and allowances.
New Accounting Rules - Example
- If net sales for 2021 was 500,000andestimated2022salesdiscounts,allowances,andreturnsrelatedto2021salesare500,000 and estimated 2022 sales discounts, allowances, and returns related to 2021 sales are 500,000andestimated2022salesdiscounts,allowances,andreturnsrelatedto2021salesare40,000; then 2021 reported net sales will be $460,000.
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Description
This quiz covers key concepts related to the sales cycle, including the categorization of cash and credit sales, and the recognition of revenue. You'll learn about journal entries and T account entries for different types of sales transactions. Test your understanding of merchandise sales and the steps involved in recognizing revenue for accounting purposes.
