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Lecture

ACCT 1201 Lecture Notes - Money Order, Income Statement, Bank Reconciliation


Department
Accounting
Course Code
ACCT 1201
Professor
Ganesh Krishnamoorthy

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Credit Card Sales to Consumers
increase sales
avoid credit directly to customers
avoid losses due to bad checks
avoid losses due to fraudulent credit card sales
receive payment quicker
company must pay credit card company a fee for services provided
Sales Discount - encourages early payment
2/10, n/30 -> "two ten, net thirty"
2 = discount percentage
10 = # of days in discount period
n = otherwise, the full amount is due
30 = maximum days in credit period
prompt receive of cash
decreases chance that customer will run out of funds
To determine whether to take the discount, calculate interest rate and annual interest rate
Interest rate for x days = amount saved/ amount paid
Annual interest rate = 365/ # of days X interest rate
Sales Returns and Allowances - returns accumulated in this account and deducted from
gross sales and cost of goods sold
Reporting Net Sales - record credit card discounts, sales discounts and sales returns and
allowances on different accounts
all contra-revenue accounts subtracted from sales
Accounting for Bad Debts
Bad debts - from credit customers who will not pay business the amount they owe,
regardless of collection efforts
subsidiary accounts - separate account receivables for every customer/retailer
estimate bad debt expense, which is closed at year-end
bad debt percentage based on uncollectible accounts from prior years' credit sales
Allowance for doubtful amounts - beg balance + allowance for doubtful amounts - write-
offs
Approaches to estimating Bad Debts
Income Statement Approach (Percentage of Credit Sales Method) = % of credit sales
(Ignore prior balance in Allowance account)
Balance Sheet Approach (Aging Method)= % of Accounts Receivable (consider balance
in allowance account)
Journal entry for adjusting entry:
Bad Debt Expense (+E, -SE)
Allowance for Doubtful Accounts (contra-asset)
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