Notesale: Turn your study into money

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Accounts Receivable – open accounts arising from the sale of goods and services in the ordinary
course of business and not supported by promissory notes
...
Customer’s accounts
2
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Initial – The amount to be recorded as accounts receivable from sales on account shall be
the Invoice Price,
2
...

List Price
Trade Discounts, Rebates, and other similar items
Invoice Price

xx
(xx)
xx

Accounts Receivable
Allowance for Sales Return
Allowance for Sales Discount
Allowance for Freight Charges
Allowance for Bad Debts
NRV/Amortized Cost

xx
(xx)
(xx)
(xx)
(xx)
xx

Methods to account for sales discount:
1
...
Sales on account:
▪ AR (Gross)
xx
Sales (Gross)
xx
b
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When payment is made beyond the discount period:
▪ Cash (Gross)
xx
AR (Gross)
xx

2
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Sales on account:
▪ AR (Net)
xx
Sales (Net)
xx
b
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When payment is made beyond the discount period:
▪ Cash (Gross)
xx
AR (Net)
xx
Sales discount forfeited xx
*Sales discount forfeited is treated as Other Income
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Relevant Entries:
1
...
Recording actual returns:
Allowance for sales returns
Accounts Receivable

xx
xx

Sales discount – a reduction from an invoice price by reason of prompt payment
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Estimation of future sales discount:
Sales discount
Allowance for sales discount

xx
xx

2
...

*If collections Include recoveries, post recoveries in ledger
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Percentage of net credit sales method
- provides the amount of doubtful accounts expense for the year
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2
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- emphasizes asset valuation
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Aging of accounts receivable method
- the most accurate of all three methods since an analysis is made and each classification
of accounts receivable is multiplied by a specific rate of estimate of uncollectability
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- emphasizes asset valuation

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