Summary: Accounting

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• 1 Accounting

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• Allowance for Doubtful Accounts

  Contra-asset account containing the estimated uncollectible accounts receivable

• Receivables Turnover Ratio=

  Net Sales/ Average Net Trade Accounts Receivable

• Explain the difference between net sales and sales revenue

  the sales revenue is top line beginning sales as a result of business operations whereas the net sales is sales revenue net of allowances, returns, and discounts.

• What is gross profit or gross margin on sales?

  Gross profit = total revenue (sales) - COGS.
  This means its gross profit is $200,000 (net sales of $800,000 minus its cost of goods sold of $600,000) and its gross margin ratio is 25% (gross profit of $200,000divided by net sales of $800,000).

• What is the credit card discount?

  Fee charged by the credit card company for its services. 
  Sales revenue might be $3,000 but with a 3% credit card discount the net sales would report only $2,910

• What is a sales (or cash) discount?

  Cash discount offered to encourage prompt payment of an accounts receivable. 
  2/10, n/30
  2% discount if paid in 10 days or else full payment is due in 30 days

• Differentiate accounts receivable from notes receivable

  
  Notes receivable is when one party extends a line of credit to another party with the promise to pay in the future mentioned date with interest. Notes receivables are transferable and can be transferred to the bank.Accounts receivable is when a party sells a good or renders a service but has not yet received money for those goods or services. Accounts receivable cannot be transferred.

• Does an increase in the receivables turnover ratio generally indicate faster or slower collection of receivables?

  It indicates a faster collection of receivables.

• Define cash and cash equivalents in the context of accounting.

  Cash is money or an instrument that banks will accept for deposit and immediate credit to a company's account (check, money order, bank draft)
  Cash equivalents are short-term investments with original maturities of three months or less that are readily convertible to cash and aren't sensitive to interest rate changes (bank certificates of deposit and Treasury bills that the U.S. government issues to finance its activities)

• Why should cash-handling and cash-recording activities be separated? How is this separation accomplished?

  Separations of duties:
  a) Complete separation of the jobs of receiving cash and disbursing cash
  b) Complete separation of the procedures for accounting for cash receipt and cash disbursements
  c) Complete separation of the physical handling of cash and all phases of the accounting function
  Separation of duties detects theft