多媒体课件-财务会计(双语)-本-10周

1、Chapter 6 Accounting for SalesLearning ObjectivesAfter studying this chapter, you should be able to:Recognize revenue items at the proper time on the income statement.Account for cash and credit sales.Record sales returns and allowances, sales discounts, and bank credit card sales.Manage cash and ex

2、plain its importance to the company.Learning ObjectivesAfter studying this chapter, you should be able to:Estimate and interpret uncollectible accounts and receivable balances.Assess the level of accounts receivable.Develop and explain internal control procedures.Recognition of Sales RevenueThe timi

3、ng of revenue recognition is critical to the measurement of net income.Revenue is part of the calculation of net income.Net income = Revenue - Expenses Measurement of revenue sometimes determines when a company recognizes certain expenses because of the matching principle.Expenses must be recognized

4、 in the same period as the revenues that create the expenses.Recognition of Sales RevenueSome users of financial information want revenues to be recorded as soon as possible.Others want to be sure that a company will actually receive payment before revenues are recorded.Accountants must carefully as

5、sess when revenue should be recognized.Recognition of Sales RevenueRecognition of revenue requires a two-pronged test:The revenue is earned.Goods or services must be delivered to the customers.The revenue is realized.Cash or other assets must be received.Recognition of Sales RevenueMost revenues are

6、 recognized at the point of sale (when goods are sold and cash changes hands).At this point, both recognition tests are met.Sometimes the tests are not always met at the same time. This results in unearned revenue.Cash is received, but nothing is given in exchange.Recognition of Sales RevenueWhat ha

7、ppens if revenue on one “sale” is earned over a long period of time, for example, on a long-term contract?Generally, the revenue from a long-term contract should be recognized as the work on that contract is performed.For example, if one-fourth of the work is completed in the first year, one-fourth

8、of the revenue should be recognized.Measurement of Sales RevenueRevenue is measured in terms of the cash equivalent value of the asset received.Journal entries to record sales:Cashxxxx Sales revenuexxxxORAccounts receivablexxxx Sales revenuexxxxMerchandise Returnsand AllowancesWhat happens when sale

9、s are recognized at the point of sale and a customer returns the goods that were sold?Sales returns - products returned to the seller by the purchaser for various reasonsThese are purchase returns from the customers perspective.Merchandise Returnsand AllowancesSometimes, instead of returning merchan

10、dise, the customer demands a reduction, (a sales allowance) in the selling price.Sales allowance - reduction of the original selling price, which is the price previously agreed upon by both partiesThese are purchase allowances from the customers perspective.Merchandise Returnsand AllowancesUsually,

11、a contra account called Sales Returns and Allowances is used to accumulate both sales returns and sales allowances.By using a contra account, the amount of gross sales is readily available, which allows managers to monitor the level of returns and allowances for various reasons.Using the contra acco

12、unt avoids changing the original sales entry for the amounts returned.Merchandise Returnsand AllowancesJournal entries for returns and allowances:To record the sale:Accounts receivable900,000 Sales revenue900,000To record the returns and allowances:Sales returns and allowances 80,000 Accounts receiv

13、able 80,000Merchandise Returnsand AllowancesGross sales - total sales revenue before deducting sales returns and allowances, if anyNet sales - total sales revenue reduced by sales returns and allowancesIncome statement presentation:Gross sales$900,000Less: Sales returns and allowances 80,000Net sale

14、s$820,000=Merchandise Returnsand AllowancesDiscounts on sales also affect the amount reported as sales.Two major types of discounts:Trade discountsCash discountsMerchandise Returnsand AllowancesTrade discounts - reductions to the gross selling price for a particular class of customers to arrive at t

15、he actual selling price (invoice price)Trade discounts are generally price concessions or purchase incentives.The gross sales revenue recognized from a trade discount is the price received after deducting the discount.Merchandise Returnsand AllowancesCash discounts - reductions of invoice prices awa

16、rded for prompt payment of the invoiceEncourage prompt payment and reduce manufacturers or sellers need for cashReduces the risk of bad debts (nonpayment)Purchasers should always take purchase discounts if possible.Recording Charge Card TransactionsCash discounts also occur when retailers accept cha

17、rge cards.Retailers accept charge cards for three reasons:To attract credit customers who would otherwise shop elsewhereTo get cash immediately rather than wait for customers to payTo avoid the cost of keeping track of many customer accountsRecording Charge Card TransactionsRetailers deposit the cha

18、rge slips in the bank (just like cash), but this costs money (usually from 1% to 3% of gross sales).This cost must be included in the calculation of net sales.EXAMPLE:$10,000 of sales where the charge card company charges 3%Cash9,700Cash discounts for bank cards 300 Sales10,000Accounting forNet Sale

19、s RevenueCash discounts and sales returns and allowances are recorded as deductions from gross sales.Gross sales$20,000Deduct: Sales returns and allowances$200 Cash discounts on sales 550 750Net sales$19,250=Accounting forNet Sales RevenueThe income statement allows different systems for accounting

20、for net sales.The preceding example shows sales, sales returns and allowances, and cash discounts in separate accounts.Net sales can be shown in one account where all sales returns and allowances and cash discounts directly decrease the sales account.CashMany companies combine cash and cash equivale

21、nts on their balance sheets.Cash equivalents - highly liquid short-term investments that can easily and quickly be converted into cashCash encompasses all items that are accepted for deposit by a bank.Paper money, coins, money orders, and checksCompensating BalancesCompensating balances - required m

22、inimum cash balances on deposit when money is borrowed from banksThe size of the compensating balance usually depends on the amount borrowed.Annual reports must disclose the state of any significant compensating balances.Without such a disclosure, readers might think that a company has more cash ava

23、ilable than it really does.Management of CashManagers spend much time managing cash for several reasons.Although cash balances may be small at any one time, the flow of cash can be enormous.Because cash is the most liquid asset, it is enticing to thieves and embezzlers.Adequate cash is essential to

24、the smooth functioning of operations.Cash itself does not earn income. It is important not to hold excess cash; it should be invested.Management of CashTo reconcile a bank statement means to verify that the bank balance for cash is consistent with the accounting records.The accounting balance and th

25、e bank balance are rarely the same.Deposits and checks are recorded in the books when made or written.Banks may receive the deposits or process the checks days later.Management of CashInternal control procedures to safeguard cash:The individuals who receive cash do not also disburse cash.The individ

26、uals who handle cash cannot access accounting records.Cash receipts are immediately recorded and deposited and are not used directly to make payments.Disbursements are made by serially numbered checks, only with proper authorization by someone other than the person writing the check.Bank accounts ar

27、e reconciled monthly.Credit Sales andAccounts ReceivableAccounts receivable - amounts owed to a company by customers as a result of delivering goods or services and extending credit in the ordinary course of businessAlso known as trade receivables or simply receivablesThe main benefit of granting cr

28、edit is a boost in sales and profits that would otherwise be lost if credit were not extended.Uncollectible AccountsUncollectible accounts (bad debts) - receivables determined to be uncollectible because debtors are unable or unwilling to pay their debtsUncollectible accounts are a major cost of gra

29、nting credit to customers.Accountants call this cost bad debts expense.Extent of nonpayment can vary greatly with size of companies and industries and depend on the credit risk that managers are willing to accept.Measurement ofUncollectible AccountsTwo basic ways to record uncollectibles:Specific wr

30、ite-off method - wait to see which receivables will not be paid and write them off at that timeAllowance method - make estimates of the portion of accounts receivable that will not be collectedSpecific Write-off MethodThe specific write-off method assumes that all sales are fully collectible until p

31、roved otherwise.This method is used by companies that rarely experience bad debts.When an account is identified as uncollectible, that account is removed from the books and an expense is recorded. Bad debts expensexxxx Accounts receivablexxxxSpecific Write-off MethodDisadvantageIt fails to apply the

32、 matching principle (expenses must be recorded in the same period as the related revenues) if the receivable is written off in a period other than when the receivable is recorded.AdvantagesIt follows the cost-benefit concept because it is simple and extremely inexpensive to use.If amounts of bad deb

33、ts are small (immaterial), no great error in measurement of income occurs.Allowance MethodThe allowance method estimates the amount of uncollectible accounts to be matched to the related revenue.It allows accountants to recognize bad debts during the proper period, before specific uncollectible acco

34、unts are identified in a subsequent period.Allowance MethodThe allowance method has two basic elements:An estimate of the amounts that will ultimately be uncollectibleA contra account, Allowance for Uncollectible Accounts, which contains the estimate and is deducted from Accounts ReceivableThe allow

35、ance method is based on historical experience and the assumption that the current year is similar to prior years.Allowance MethodPresentation of Accounts Receivable under the allowance method:Accounts receivable $40,000Less: Allowance for uncollectible accounts 2,000Net accounts receivable $38,000 =

36、Applying the Allowance Method Using a Percentage of SalesPercentage of sales method - an approach to estimating bad debts expense and uncollectible accounts based on historical relations between credit sales and uncollectiblesBad debts are assumed to be some percentage of sales.Applying the Allowanc

37、e Method Using a Percentage of SalesEcho Company has $150,000 in credit sales. Historically, 2% of credit sales are determined to be uncollectible. During the year, Echo Company determines that $2,000 of receivables will not be collected. What are the entries to record the sales, establish the Allow

38、ance account, and write off the uncollectible accounts?Applying the Allowance Method Using a Percentage of SalesThe entry to record the sales:Accounts receivable150,000 Sales150,000The entry to record the estimate for bad debts:Bad debts expense 3,000 Allowance for uncollectible accounts 3,000The en

39、try to record actual uncollectible accounts:Allowance for uncollectible accounts 2,000 Accounts receivable 2,000Applying the Allowance Method Using a Percentage of Accounts ReceivablePercentage of accounts receivable method - an approach to estimating bad debts expense and uncollectible accounts at

40、year end using the historical relations of uncollectibles to accounts receivableApplying the Allowance Method Using a Percentage of Accounts ReceivableThe Allowance for Uncollectible accounts is used to estimate the approximate amount of bad debts included in the ending Accounts Receivable.Additions

41、 to Allowance for Uncollectible Accounts are calculated to achieve a desired ending balance in the Allowance account.An adjusting journal entry is made to adjust the balance in the Allowance account to the desired balance at the end of the year.Applying the Allowance Method Using a Percentage of Acc

42、ounts ReceivableCalculating the allowance under the percentage of receivables method:Divide average bad debts by average ending balance of Accounts Receivable to calculate the historical average uncollectible percentage.Apply the percentage from step 1 to the ending Accounts Receivable balance to de

43、termine the desired ending balance in the Allowance account at the end of the year.Prepare an adjusting entry to adjust the Allowance account to the amount determined in step 2.Applying the Allowance Method Using the Aging of Accounts ReceivableAging of accounts receivable method - an analysis that

44、considers the composition of year-end accounts receivable based on the ages of the debts.The more time elapses after the sale, the less likely collection of the receivable becomes.The aging gives a desired balance in the Allowance account just as the percentage of accounts receivable method does; ho

45、wever, the amount desired in the Allowance account will probably be somewhat different.Applying the Allowance Method Using the Aging of Accounts ReceivableAccounts receivable aging schedule:1-30 days31-90 daysOver 90 days TotalAccounts receivable $70,000 $30,000 $2,000Percentage 1% 2% 90% $ 700 $ 60

46、0 $1,800 $3,100 = = = =$3,100 is the desired amount in the Allowance account. A journal entry will be made to adjust the Allowance account to that amount.Bad Debt RecoveriesSometimes accounts will be collected after they have been written off.When this happens, the write-off should be reversed and t

47、he collection handled as a normal receipt on account.Assessing the Level ofAccounts ReceivableManagement should monitor the ability of the company to control accounts receivable.They often use accounts receivable turnover for measuring that ability.Assessing the Level ofAccounts ReceivableAccounts r

48、eceivable turnover indicates how rapidly collections of accounts receivable occur.The ratio tells how many times, on average, accounts receivable “turn over” during the year.Higher turnovers indicate that receivables are collected quickly.Lower turnovers indicate that receivables are collected more

49、slowly. Assessing the Level ofAccounts ReceivableDays to accounts receivable (average collection period) - an indication of how long it takes to collect money after a sale is madeOverview of Internal ControlThe purpose of internal control is the creation of a system of checks and balances that assur

50、es that all actions occurring within a company are in accord with organizational objectives and have the general approval of top management.At one level, internal control seeks to tie daily decisions to corporate strategy.At another level, internal control refers to the protection of firm assets fro

51、m theft or loss.Overview of Internal ControlTypes of controls:Administrative controls - all methods and procedures that facilitate management planning and control of operationsAccounting controls - the methods and procedures for authorizing transactions, safeguarding assets, and ensuring the accurac

52、y of the financial recordsOverview of Internal ControlInternal accounting controls should provide reasonable assurance concerning:Authorization - Transactions are executed in accordance with managements general or specific intentions.Recording - All authorized transactions are recorded in the correc

53、t amounts, periods, and accounts. No fictitious transactions are recorded.Safeguarding - Precautions and procedures appropriately restrict access to assets.Overview of Internal ControlInternal accounting controls should provide reasonable assurance concerning:Reconciliation - Records are compared wi

54、th other independently kept records and physical counts.Such comparisons help ensure that other control objectives are attained.Valuation - Recorded amounts are periodically reviewed for impairment of values and necessary write-downs.Overview of Internal ControlThe first three objectives, authorizin

55、g, recording, and safeguarding, are related to establishing the system of accountability and are aimed at the prevention of errors and irregularities.The fourth and fifth objectives, reconciliation and valuation, are aimed at detecting errors and irregularities.A sixth objective of internal control

56、is to promote operating efficiency.The Accounting SystemAccounting system - a set of records, procedures, and equipment that routinely deals with the events affecting the financial performance and position of the entityThe focus of the accounting system is on repetitive, voluminous transactions that

57、 fall into four categories:Cash disbursementsCash receiptsPurchase of goods and services, including payrollSales or other rendering of goods and services The Accounting SystemMost accounting systems make use of computers and data processing to handle the enormous number of transactions that occur ea

58、ch day.Well-designed and well-run accounting systems are positive contributions to the organization.Managements ResponsibilityAlthough outside auditors attest to the financial reports of an entity, management bears the responsibility for a companys financial statements.Management reports - explicit

59、statements in annual reports of publicly held companies that management is responsible for all audited and unaudited information in the annual reportThe Audit CommitteeAudit committee - a committee of the board of directors that oversees the internal accounting controls, financial statements, and fi

60、nancial affairs of the corporationThe Audit CommitteeThe committee provides contact and communication among the board, the external auditors, the internal auditors, the financial executives, and the operating executives.The committee is typically composed of members from “inside” the company (manage