ACC 240 Lecture 11: ACC 240 lecture notes 11
Revenue Recognition Principle
The revenue recognition principle requires that revenues be recorded when earned. "Goods and
Services have been transferred to customers." "The appropriate amount of revenue to record is the
amount the seller expects to receive.
Free on Board
Destination- the title of the goods changes hands on delivery. Shipping point- the title of the goods
changes hands at the shipping date.
Why companies accept credit cards
1. To increase sales, 2. To avoid the costs of providing credit directly to customers. 3. To avoid losses due
to bad checks. 4. To avoid losses due to fraudulent credit card sales. 5. To receive payment quicker.
Interest Rate for 20 Days
Amount Saved/ Amount Paid
Annual Interest Rate
365 days/ 20 days X Interest Rate for 20 days.
Reporting Net Sales
Companies record credit card discounts, sales discounts and sales returns and allowances separately to
allow management to monitor the magnitude of these transactions.
Trade Receivables
Amounts owed to the business for credit sales of goods or services.
Non trade receivables
Amounts owed to the business for reasons other than the normal sale of merchandise or services.
Bad Debts
Bed debts result from credit customers who will not pay the amount they owe, regardless of collection
efforts. It is normally classified as a selling expense and is closed at year-end.
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