Vocabulary Chapter 3
Records revenues when cash is received and expenses when cash is paid
Cash Basis Accounting
Money or any instrument that banks will accept for deposit and immediate credit to a company's account, such as a check, money order, or bank draft.
Cash
Paid $400 on account.
Accounts Payable $400
Cash $400
Received $200 on account from a customer who did not pay within the discount period.
Cash $200
Accounts Receivable $200
Liabilities + Stockholders' Equity
Assets
Records revenues when earned and expenses when incurred, regardless of the timing of cash receipts or payments.
Accrual Accounting
Open accounts owed to the business by trade customers.
Accounts receivable
Borrowed $230,000 from the bank on December 1, signing a note payable due in 6 months.
Cash $230,000
Notes Payable $230,000
It was determined that customer D. Beat was not going to pay their invoice of $1,000. The journal entry to record the write-off of the account. (assume the bad debt expense was recorded in the previous year)
Allowance for doubtful accounts $1,000
Accounts receivable $1,000
Revenues - Expenses
Net Income
The time it takes for a company to pay cash to suppliers, sell goods and services to customers, and collect cash from customers.
Cash to cash cycle.
Fees charged by the credit card company for its services.
Credit card discount
On March 25, received $320,000 in cash for services to be provided on April 5.
Cash $320,000
Service Revenue $320,000
Collected $500 cash from XYZ, Company on 9/15. The invoice was dated 9/1 and the payment terms were 2/10, n30.
Cash $500
Accounts receivable $500
Ending retained earnings = Beginning retained earnings + Net Income - ___________________
Dividends
Revenues are recognized (1) when the company transfers promised goods or services to customers (2) in the amount it expects to be entitled to receive.
Revenue recognition principle.
Expenses associated with estimated uncollectible accounts receivable.
Bad debt expense.
Issued 10,000 shares of $1 par value stock and received $25,000 cash.
Cash $25,000
Common Stock $10,000
Additional Paid in Capital $15,000
Collected cash from Customer B on account on May 8. The invoice for $1000 was dated May 1 and the terms were 2/10, n30.
Cash $980
Sales discounts $20
Accounts receivable $1000
Sales revenue - credit card discounts - sales discounts - sales returns and allowances
Net sales
Decreases in assets or increases in liabilities from ongoing operations incurred to generate revenues during the period.
Expenses
Contra-asset account containing the estimated uncollectible accounts receivable.
Allowance for doubtful accounts
Declared $800 in dividends at the end of the year to be paid the following year.
Retained earnings $800
Dividends Payable $800
Sold $200 of merchandise to Customer B with terms of 3/10, n30. The cost of the goods was $140.
Record both transactions.
Accounts receivable $200
Sales revenue $200
Cost of goods sold $140
Inventory $140
When expenses exceed revenues in a given period.
a. Retained earnings are not impacted.
b. Retained earnings are decreased.
c. Retained earnings are increased.
d. One cannot determine the impact on retained earnings without additional information.
b. Retained earnings are decreased.