[AFM 101] - Midterm Exam Guide - Comprehensive Notes for the exam (51 pages long!)
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AFM101 Full Course Notes
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Sales returns and allowances is a contra revenue account (denoted by xr (cid:862)co(cid:374)tra reve(cid:374)ue(cid:863)). Allowance for sales returns (denoted by xa (cid:862)co(cid:374)tra asset(cid:863)) is to deduct fro(cid:373) i. e. t/r if expected to have returns from credit sale. Within the general ledger, there are subsidiary ledger accounts which track individual activities (i. e. subsidiary ledger for t/r includes individual customer accounts). To impact the percentage of gross margin/profit: can either decrease cogs or increase selling price. Recognizing bad debt expense (cash that is not expected to be collected from credit sales) The purpose of recording bad debt expense is to not overstate assets; we must match bad debt in same period that the revenue was earned (matching principle). The purpose for the existence of the allowance for doubtful accounts is to record estimated uncollectable amounts. We do not deduct from the t/r account (aka write off) until we have determined which customer accounts are uncollectable. (1) earnings statement approach.