| A | B |
|---|
| Recognize Revenue | 1) Delivery has occurred or services have been rendered= 2) There is evidence of an arrangement for customer payment= 3) The price is fixed or determinable= 4) Collection is reasonably assured= (In general, these conditions are satisfied at the POINT OF DELIVERY of good or services [FOB Destination])= (Sometimes, companies recognize revenues at the POINT OF SHIPPING [FOB Shipping Point]) |
| Reporting Net Sales | Companies record sales discounts, sales returns and credit card discounts separately to allow management monitoring of these transactions |
| Net Sales=? | [Sales Revenue] - [Sales returns and allowances + Sales Discounts + Credit Card Discounts] |
| Sales On Account | When companies allow customers, mainly businesses, to purchase merchandise on an open account, the customer promises to pay the company in the future for the purchase |
| Sales On Account: 2/10, n/30 | Read as: "Two Ten, Net Thirty"= When customers purchase on open account, they must be offered a SALES DISCOUNT (or a CASH DISCOUNT) to encourage early payment |
| 2/10, n/30 | 2 (=% of Discount); 10 (=# of days discount is available); n (=otherwise, the FULL Amount is due); 30 (# of days when full amount is due) |
| Cash/Sales Discounts VS. Trade Discounts | Cash discounts encourage early payment= Sometimes companies give discounts to encourage sales (e.g. lower price for higher volumes; end of season discounts)= These affect the sale and thus the lower amounts will be recorded directly on the sales account (TRADE DISCOUNTS are absorbed into REVENUES) |
| Gross Profit Margin=? | [Gross Profit]/[Net Sales] |
| Gross Profit Margin | Looks at the ability of a firm to charge premium prices for its products and produce efficiently and minimize costs |
| Gross Profit Margin= Analyzing | Analyzing GM requires comparing a single firm over time to see trends and comparing several similar firms in a single period |
| Gross Profit Margin= Firm strategies will translate into... | Different gross margins= Is the company able to charge premium prices?; Is the company's strategy to charge lower prices but to attract more customers?; Is the company powerful enought to reduce the prices it pays for merchandise? |
| Gross Profit Percentage=? | [Gross Profit]/[Net Sales] |
| All other things equal, a higher gross profit results.... | In higher net income |
| Gross Profit | [Sales Revenue] - [Cost of Goods Sold] |
