AC 210 Lecture Notes - Lecture 25: Income Statement, Cash Register, Accounts Receivable
5 Jun 2018
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Recording Sales
Sales invoices are source documents that provide a record for each sale. For control
purposes, sales invoices should be sequentially prenumbered to help the accounting
department determine the disposition of every invoice. Sales revenues equal the
selling price of all products that are sold. In accordance with the revenue recognition
principle, sales revenue is recognized when a customer receives title to the
merchandise, regardless of when the money changes hands. If a customer purchases
merchandise at a sales counter and takes possession of the goods immediately, the
sales invoice or cash register receipt is the only source document needed to record the
sale. However, if merchandise is shipped to the customer, a delivery record or shipping
document is matched with the invoice to prove that the merchandise has been shipped
to the customer.
Suppose a company named Music Suppliers, Inc., sells merchandise worth $1,000 on
account to a retail store named Music World. Music Suppliers, Inc., records the sale
with the journal entry below.
For reference purposes, the journal entry's description often includes the invoice
number.
Sales Returns and Allowances
Although sales returns and sales allowances are technically two distinct types of
transactions, they are generally recorded in the same account. Sales returns occur
when customers return defective, damaged, or otherwise undesirable products to the
seller. Sales allowances occur when customers agree to keep such merchandise in
return for a reduction in the selling price.
If Music World returns merchandise worth $100, Music Suppliers, Inc., prepares
a credit memorandum to account for the return. This credit memorandum becomes the
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Document Summary
Sales invoices are source documents that provide a record for each sale. For control purposes, sales invoices should be sequentially prenumbered to help the accounting department determine the disposition of every invoice. Sales revenues equal the selling price of all products that are sold. In accordance with the revenue recognition principle, sales revenue is recognized when a customer receives title to the merchandise, regardless of when the money changes hands. If a customer purchases merchandise at a sales counter and takes possession of the goods immediately, the sales invoice or cash register receipt is the only source document needed to record the sale. However, if merchandise is shipped to the customer, a delivery record or shipping document is matched with the invoice to prove that the merchandise has been shipped to the customer. Suppose a company named music suppliers, inc. , sells merchandise worth ,000 on account to a retail store named music world.
