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Chapter Six


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Chapter Eight
Chapter Seven - Sales and Collections

Sale Discount

  • Recall 2/10, net 30
  • Sell $1,000 of stuff
  • Record the sale as normal (as if being paid on the 30th)
    • Debit Account Receivable   $1,000
      • Credit Sales                                    $1,000
  • If customer pays within 10 days:
    • Debit cash                                      $ 980
    • Debit Sales Discount                       $   20
      • Credit Account Receivable                  $1,000

Sales Return

  • Instead of paying within 10 days, customer returns $1,000 of stuff
    • Debit Sales Return                          $1,000
      • Credit Account Receivable                  $1,000
  • Sales – Sales Discount – Sales Returns = Net Sales

     
Bank Statement Reconciliation
Ask, “Who knows this?”

 Outstanding Checks                               ( You Know )
 Deposit in Transit                                  ( You Know )
 Service Charges                                   ( Bank Knows )
 NSF Checks Received                          ( Bank Knows )
 Interest Earned                                    ( Bank Knows )
 Error by Bank                                         ( You Know )
 Notes Collected by Bank                      ( Bank Knows )

  • Add or subtract each from whichever balance you have:
    • i.e. If you have the Bank statement add or subtract what the Bank does not know
    • i.e. If you are balancing your checkbook, add or subtract what you did not know

Allowance Method for Account Receivable

  • Account Receivable is held at net realizable value
  • Allowance for Uncollectible Account
    • What you don’t expect to collect, but not sure WHO won’t pay
    • CONTRA- ASSET Account
  • There is no effect on the financial statement when an account is written off against the Allowance
  • To calculate the amount of Bad Debt Expense
    • Beginning Allowance – Write-Offs + Bad Debt Expense = % not expected to collect

       

Direct Write-Off Method for Account Receivable

  • Account Receivable is held at full value, write off bad debt when you know WHO
    • Debit Bad Debt Expense
      • Credit Account Receivable

         

Warranties:

  • Matching principle – Record estimated warranty expense for the life of warranty provided at the time of sale
    • Debit Warranty Expense
      • Credit Warranty Liability
  • When the warranty work actually happens – will NOT effect Income Statement*
    • Debit Warranty Liability
      • Credit Cash/Parts

         

Payroll:

  • Gross Pay – How much you hire someone for (This is the amount for Salary/Wage Expense)
  • Net Pay – How much cash that person receives ( Gross Pay – Income Taxes – FICA – Medicare)
  • The WITHHELD amounts are LIABILITIES to the government
  • KEY POINT – Employer must MATCH the FICA and Medicare costs (more Expense and Liabilities)

Chapter Six


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Chapter Eight
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Simple and to the Point