AC06

My Boutique

Apply the revenue principle to determine appropriate
time to record sales revenue.

Identify and record cash and credit sales

transactions.

Determine the impact of sales return and sales

discount transactions on the net sales amount
presented in the financial statements.

Determine the impact of provision of warranties and

warranty repairs

Determine the impact of deposit received in advance

of sales transaction (i.e. order of goods by
customers).

How to account for the following sales transactions?
o Sales discounts
o Sales returns
o Collection of payments in advance from customers
o Warranty for watches sold

Impact of the sales transactions on the company.

You are interested to know the financial position of My

Boutique Pte Ltd and how much profit it has made for
January 2009.
 Sale of Goods/Products

Rendering of Services

Use of enterprise assets by

others yielding interest,
royalties and dividends
Revenue Principle

Revenues are recorded when they are earned

Delivery has Persuasive Price is fixed

occurred or evidence of or
an determinable,
service have arrangement and collection
been for customer is reasonably
rendered payment assured

These criteria have to be met and sales revenue

recorded when goods pass from seller to buyer.
Cash Sales

Cash collected at the point of sale.

Credit Sales

Cash to be collected at later date.

There are two types of sales discount - trade discount and cash
discount.

(A) Trade discount

Subtracted from sales (along with sales returns) to arrive at net
sales.

Example:
Sales XX
Less: Trade discount(XX)
sales returns (XX)
Net sales XX
Less: COGS (XX)
Gross profit XX

(B) Cash discount
A selling expense incurred by seller if the customers pay the
amount within a specified period of time. For example, terms of
"1/10, n/30" indicates that the credit term is 30 days but the buyer
can deduct 1% of the amount owed if the customer pays the
amount owed within 10 days.

Example:
Sales XX
Less: COGS (XX)
Gross profit XX
Less: Expenses
Cash discounts (XX)
Other expenses (XX) XX
Net profit XX

• Customer have a right to return
unsatisfactory or damaged
merchandise and receive a refund or
an adjustment to their bill.

• Recorded as “Sales Returns and

Allowances”. As it will reduce sales,
it is debit in nature.

• Cost of Goods Sold related to the

return would also be reduced.
Matching of warranty expense
with product sales

Current or long-term liability (or

split) depending on when costs
are expected to be incurred.
 Solution to
Problem Statement

NB: The solution we are providing is based on perpetual

inventory system
Solution to Problem Statement
Cash Sales

On 11 January, sold 10 watches to a tourist at $350 each.

Dr Cr
11 Jan 09 Cash S$3,500
Sales S$3,500
(Being sale of 10 watches)

Recognising cost of inventory sold

This journal entry records the costs of 10 watches sold.

11 Jan 09 Cost of Goods Sold S$1,000

Inventory S$1,000
(Being cost of 10 watches)
Solution to Problem Statement

Credit sales

On 9 Jan, sold 10 evening gowns to Glamour Media Pte Ltd for S$4,500 on
credit, terms 5/10, net 30.
Dr Cr

9 Jan 09 Accounts Receivable – Glamour Media S$4,500

Sales S$4,500
(Being sale of 10 evening gowns. Cash to be collected at later
date)

9 Jan 09 Cost of Goods Sold S$1,500

Inventory S$1,500
(Being cost of 10 evening gowns sold)
Solution to Problem Statement

Render of Services
On 8 January, a fee of S$50 was charged for the delivery of goods.

Dr Cr

8 Jan 09 Cash S$50

Delivery Service S$50
(Being delivery fees)
Solution to Problem Statement

Sale of Goods with discount

Customer ordered 5 evening gowns and 5 pairs of shoes at S$2,700
after 10% discount on 6 Jan. Cash collected and goods delivered to the
buyer only on 8 Jan.
Dr Cr
6 Jan 09 No Journal entries needed

8 Jan 09 Cash S$2,700

Trade Discount S$300
Sales S$3,000
(To record sale of 5 evening gowns and 5 pairs of shoes after
10% discount)

8Jan 09 Cost of Goods Sold S$1,000

Inventory S$1,000
(Being cost of 5 evening gowns and 5 pairs of shoes sold)