BU127 Lecture Notes - Lecture 10: Gross Profit, Accounts Receivable, Cheque
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BU127 Full Course Notes
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Reporting and interpreting sales revenue, receivables and cash [chapter 7] The revenue principle requires that revenues be recorded when earned. Entity retains neither continuing managerial involvement nor effective control. Probable that economic benefits will flow to the entity. Avoid losses due to fraudulent credit card sales. When credit card sales are made, company must pay the credit card company a fee for the service it provides. When customers purchase on open account, may be offered a sales discount to encourage early payment. Ex: 2/10-->2% discount if payment within 10 days n/30--> must pay net amount within 30 days. With discount terms of 2/10,n/30, a customer saves on a purchase by paying on the 10th day instead of the 30th day. Annual interest rate= 365 days/ 20 days *2. 04%= 37. 23% Companies record credit card discounts, sales discounts, and sales returns and allowances separately to allow management to monitor these transactions.