Business Administration 2257 Chapter Notes - Chapter 5.1: Perpetual Inventory, Accounts Receivable, Operating Expense

• School: Western University
• Department: Business Administration
• Course: Business Administration 2257
• Professor: J S

Document Summary

To record sales revenue, debit cash or accounts receivable and credit sales revenue. If the customer paid in advance, debit the unearned revenue account and credit sales revenue. Sales invoice provides support for a credit sale. Two journal entries are required to record each sale in a perpetual inventory system: debit cash or accounts receivable, credit sales, debit cost of goods sold, credit merchandise inventory. Some companies will keep separate sales accounts, but then combine them when making documents for their external users: this is (cid:271)e(cid:272)ause (cid:272)o(cid:373)pa(cid:374)ies ge(cid:374)erally do(cid:374)"t wa(cid:374)t their (cid:272)o(cid:373)petitors to k(cid:374)ow the details of their operating results. When a company collects sales taxes from selling a product, this is not considered revenue: recorded as a liability until they are paid to the government. Fob destination means the seller assumes the responsibility for delivering the goods to their intended destination: freight costs incurred are an operating expense, costs are debited to the freight out or delivery expense.