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Receivables

Q: Variable Consideration of A/R: Sales Returns & Allowances

-To account for companies should recgonize: Revenue and COGS when product are sold An asset (& corresponding adjustment to revenue and COGS) for the goods returned from customers. -EX JE: Recording Sale of product & COGS DR A/R CR Sales DR COGS CR Inventory -JE: Recording returns DR Sales returns & allowance CR A/R DR Returned Inventory CR COGS

5 important questions on Receivables

Recognition of Accounts Receivable

-Service organizations record a receivable when they provide services "on account"
-Merchandiser records A/R at the point of sale of merchandise "on account."
-EX JE:
DR A/R
CR Sales

Variable Consideration of A/R: Trade Discounts

-Reductions in the list price of a product offered by a seller to a buyer

e.g., 10% quantity discount
Customer billed net amount

Variable Consideration of A/R: Cash Discount (Sales Discount)

-Used to induce early payment.
EX: 2/10, n/30; 2% off if paid within 10 days || gross amount due in 30 days
OR
EX: 2/10 E.O.M., Net 30 E.O.M; 2% off if paid by any time by the 10th day of following month || With full amount by the 30th of the following month

Cash/Sales Discount: Gross vs. Net Method

-Gross Method: Recgonize receivable and revenue @ invoice price
-Net Method: Same as gross method - cash discount calculated

Variable Consideration of A/R: Sales Returns & Allowances

-To account for companies should recgonize:

Revenue and COGS when product are sold
An asset (& corresponding adjustment to revenue and COGS) for the goods returned from customers.

-EX JE: Recording Sale of product & COGS
DR A/R
CR Sales
DR COGS
CR Inventory
-JE: Recording returns
DR Sales returns & allowance
CR A/R
DR Returned Inventory
CR COGS

The question on the page originate from the summary of the following study material: