BU127 Lecture 7: Chapter 7
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BU127 Full Course Notes
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Document Summary
Reporting and interpreting sales revenue, receivables, and cash. The revenue principle requires that revenues be recorded when earned. It is probable that economic benefits will flow to the entity. The amount of revenue can be measured reliably. The entity retains neither continuing managerial involvement nor effective control. When companies allow customers to purchase merchandise on an open account, the customer promises to pay the company in the future for the purchase. When customers purchase on open account, they may be offered a sales discount to encourage early payment. 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. These situations are recorded in a separate account called sales. Companies record credit card discounts, sales discounts, and sales returns and allowances separately to allow management to monitor these transactions. Other things equal, higher gross profit results in higher net earnings.
