MGAB01H3 Chapter 5.3: Chapter 5.3

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MGAB01H3 Full Course Notes
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MGAB01H3 Full Course Notes
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To comply with the revenue recognition principle, sales revenue is recorded when it is earned, just as service revenue is. Two entries are made for each sale in a perpetual inventory system. (1) dr cash or a/r, cr sales (2) dr costs of goods sold, cr merchandise inventory. Sales taxes are collected when goods are sold. They are not however a part of revenue. The company simply acts as a tax agent collector for the government and must be periodically remitted to the government. When the selling terms indicates fob destination, the costs to transport the goods are debited to the operating expense account freight out or delivery expense. When customers are given discount or return goods, the seller will return cash or credit to the customer. Under perpetual system, there are two entries to record a sales returns and allowances. (1) dr sales returns and allowances, cr cash or a/r (2) dr merchandise inventory, cr cost of goods sold.

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