MBA - Accounting

Management

CHAPTER 5
Revenue and Monetary Assets

Group 2
Ms. Odessa Jarina
Ms. Beatrix Rose Beltijar
Mr. Edmer Gatchalian
 Business Operating
Cycle
Collect the cash from the
customer

Costumer Acknowledges Purchase Materials

receipt of the item

Convert Materials into a

Ship the Product and Send Finished Product
the costumer an invoice

Receive an Order for the Inspect the Product

Product from a costumer

Store the product in a

Warehouse
 Different Types of
Methods
Delivery Method
Is to recognize the revenue in the period in which
goods are delivered or services are provided.
Percentage of Completion Method
The amount of revenue is related to the percentage
of the total project work that was performed in the
period.
Production Method
Is permitted but not required by generally
accepted accounting principles.
Installment Method
The installment payment is counted as revenue and a
proportional part of the cost of sales is counted as a
cost in the same period.
Bad Debts
Costumer who never pay their dues.

Accounting Recognition of Bad Debts

When a company makes a sale, the fact that the
costumer will never pay the bills.
There are 2 ways of making this adjustment.
1. Direct write-off Method – Uncollectable are simply
eliminated from the records, by subtracting the
amount of the bad debt from accounts receivable.
2. Allowance Method – The total amount of un-
collectable amounts is estimated and will be deducted
in accounts receivable on the balance sheet and as an
expense on the income statement.

Amount of Revenue Recognized

Cash Discounts
Cash Discount is given to induce customers to pay bills
quickly.

3 Ways to record a Cash Discounts

1. Can be recorded as a reduction from gross sale.
2. Can be recorded as an expense of the period.
3. Can be recorded as the net amount. If customer who do
not take the discount would be recorded as additional
revenue.

Credit Card Sales

Merchant send electronically the sales data and
charge to a bank which next day credit the
merchant account for the sales amount.

Sales Discounts
Sales Returns and Allowances
Conceptually similar to bad debts, because when
costumers are dissatisfied with goods or services
sold to them the company may permit them to
return the goods for full credit or it may refunded.
Revenue Adjustment vs. Expense
The revenue should be reported at the amount that
is reasonably certain to be collected. The amount
must be subtracted from gross revenues in order
to determine the net revenue of the period.

Warranty Costs
Obligation to repair or replace defective goods,
because it is an explicit part of the sales contract
or because there is an implicitly legal doctrine.
Interest Revenue
Principal source of revenue to a bank or other lending
institution is interest on the money that it lends.

Monetary Assets
Are money or claims to receive fixed sums of money.

Non-Monetary Assets
Are items that will be used in the future.
Cash
Consist of funds that are immediately available for
disbursement.

Receivables
Were amount due from costumers.
Marketable Securities
Investing it in certificates of deposits. There are 2
types of marketable securities.

1. Commercial Paper – is a colloquial name for

short term interest-bearing promissory notes.
2. Treasury Bills – making a short term loan to
government.
Analysis of Monetary Assets

Current Ratio
Is the most commonly used of all balanced sheet ratio.

Current ratio = Current Assets = $ 1,245.1 = 1.03

Current Liabilities $ 1,214.6

Acid-Test Ratio
That focuses on the relationship of monetary
current assets to current liabilities
Acid-test ratio = Monetary Current Assets = $ 634.9 = 0.52
Current Liabilities $ 1,214.6
MBA - Accounting
Management

THANK YOU

Group 2
Ms. Odessa Jarina
Ms. Beatrix Rose Beltijar
Mr. Edmer Gatchalian