ACCT20200 Chapter Notes - Chapter 5: Accounts Receivable, Income Statement, General Ledger
Ch. 5: Receivables and Sales
● Accounts receivable: the amount of cash owed to a company by its customers from the
sale of goods or services on account
○ Originate from credit sales
● Credit sales: transfer goods or services to a customer today while bearing the risk of
collecting payment from that customer in the future.
○ Typically include an informal credit agreement supported by an invoice
○ Invoice: source document that identifies the date of sale, the customer, the items
sold, dollar amount of the sale, and payment terms,
● Even though no cash is received at the time of the credit sale, the seller records revenue
immediately once the goods and services are provided to the customer and future
collection from the customer is probable
● The legal right to receive cash is valuable and represents an asset of the company
● Benefit of extending credit: the seller makes it more convenient for the buyer to purchase
goods and services.
● Cost of extending credit: the delay in collecting cash from customers, and some customers
may not pay at all.
● Other types of receivables:
○ Nontrade receivables: originate from sources other than customers (tax refunds,
claims, interest receivable, loans)
○ Notes receivable: receivables accompanied by formal credit arrangement with
written debt instruments
● Net revenues: total revenues less any amounts for returns, allowances, and discounts
● Trade discounts: represent a reduction in the listed price of a good or service
○ Incentives for large customers or consumer groups
○ Good way of changing prices without publishing a new price list or to disguise real
prices from competitors
○ Are recorded indirectly by recording revenue equal to the discounted price
● Sales return: a customer returns goods previously purchased (increase =debit)
● Seller allowance: the customer doesn’t return goods but the seller instead reduces the
customer’s balance owed for goods or services provided
