Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

3. Accrual Accounting Concepts

Revenue Recognition and Expense Recognition

Financial Accounting

3. Accrual Accounting Concepts

Revenue Recognition and Expense Recognition

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Multiple Choice

Which of the following statements regarding sales discounts is true?

Sales discounts are recorded as a reduction of gross sales revenue on the income statement.

Sales discounts are recognized only when payment is received after the discount period.

Sales discounts are classified as an operating expense.

Sales discounts increase the reported amount of accounts receivable.

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Verified step by step guidance

Understand the concept of sales discounts: Sales discounts are reductions in the amount owed by a customer if they pay within a specified period, often referred to as the discount period. These discounts are offered to encourage prompt payment.

Identify how sales discounts are recorded: Sales discounts are not classified as operating expenses. Instead, they are recorded as a reduction of gross sales revenue on the income statement, which reflects the net sales amount.

Clarify the timing of recognition: Sales discounts are recognized only when the customer makes the payment within the discount period. If payment is made after the discount period, no discount is applied or recognized.

Analyze the impact on accounts receivable: Sales discounts do not increase the reported amount of accounts receivable. Instead, they reduce the amount of cash expected to be collected if the customer takes advantage of the discount.

Conclude the correct statement: Based on the analysis, the correct statement is that sales discounts are recorded as a reduction of gross sales revenue on the income statement.