contra revenue account examples

Consolidation of financial statements is required when a controlling interest is achieved. Includes all shares of stocks and bonds held with the intent to sell if future cash needs arise. A certified financial statement audit refers to a CPA’s examination of a company’s financial statements for the purpose of expressing an opinion as to the fairness of the financial statements prepared in accordance with GAAP.

In the case of merchandise returns, the providing of “credit on account” means that the account receivable from a credit customer returning the merchandise is reduced by the sales price of the returned goods through a credit entry. quantifies the correlation between two variables (i.e. number of units produced and contra revenue account examples the company’s total manufacturing overhead costs.) Also known as R2. A 1.0 coefficient implies a perfect 100% correlation where every data point on the graph is on the regression line. A zero R2 means the regression line is a poor fit, or in other words, there is no correlation between the company’s two variables.

Stock dividend defined as more than 20 to 25% of the shares outstanding at the date of declaration. A large stock dividend decreases retained earnings at the par or stated value only. Usually motivated by a company’s desire to lower the stock’s market contra revenue account examples price per share in hopes that this will increase trading in the company’s stock and lift its overall value over time. Partnerships do not generally provide such legal protections unless they are formed and operated as LLPs according to state law.

Usually non-operating revenues are only a fraction of operating revenues. At this point in the accounting cycle, we have prepared the financial statements. The videos in the adjusting entry section gave you a preview into this process but we will discuss it in more detail.

Many companies that experience increasing stock values over time will choose to split their stock simply to keep a lower per share trading price available to investors in the secondary stock markets. Rights given to employees or others to purchase shares of a company’s stock at a predetermined price at certain times. Represent management’s goals relative to a product’s cost per unit of production. In addition, a company’s general manager and controller will also usually be involved in the final determination of a product’s standard cost.

Cost Center

A term which has a number of important meanings depending upon the context. Credit is a term that is often used in conjunction with the providing and incurring of debt financing. A person or organization is said to “have credit” if they can qualify for a loan or purchase contra revenue account examples on account, also referred to as a “credit purchase.” An “extension of credit” implies the making of a loan or a credit sale. The term “credit” is also used in the context of credit entries which refer to journal entries made to the right side of an account.

The manual or electronic transfer of an originally recorded debit or credit journal entry to the proper general ledger account. Postings to any general ledger account that has a supporting subsidiary ledger must also be made to the appropriate detailed account within the subsidiary ledger. A capital budgeting technique that determines the length of time required to recover the initial cost of an investment.

I also don’t see the normal contra asset accounts for Allowance for Doubtful Accounts or Allowance for Estimated Uncollectible Debts. Claims of the company that are unlikely to result in any future obligation do not need to be recorded or disclosed anywhere in the financial statements. The process of distributing a number of shares of stock to existing stockholders in exchange for shares that are currently owned. A 2-for-1 stock split means that two shares are issued for every one previously owned.

Why Is Accumulated Depreciation A Credit Balance?

Stocks are called equity securities because they provide holders with ownership rights or equity interests in a company. When stocks are purchased, returns on investment come in the form of dividends and any gains on the subsequent sale of the stock. The acquisition of any long-term assets such as property, plan and equipment. Any subsequent disposition of those assets is also part of a company’s investing activities.

  • Rental of property held for income purposes is not included here, but is recorded under account 1540.19205Contributions and Donations From Private Sources.
  • For example, revenue received from operation of a skating facility by a school district as a community service would be recorded here.
  • Revenue from the rental of either real or personal property owned by the school district.
  • Revenue associated with contributions and donations made by private organizations.
  • Revenue from community services activities operated by a school district.
  • Multiple accounts may be established within the 1800 series to differentiate various activities.19005Other Revenue From Local Sources.

The scattergraph method utilizes a graph in which points of volume and the related mixed cost for a number of periods are plotted and a line is subjectively drawn through the resulting points on a visual best-fit basis. The slope of the resulting line represents the variable cost per unit component of the mixed cost, while the point of intersection of the line with the graph’s vertical axis represents the fixed cost portion. An alternative approach used to segregate the fixed and variable cost components of a mixed cost is the high-low method. This method is more objective, but is generally inferior to the scattergraph method because it utilizes only two points of reference to make its determination of fixed and variable costs. Taxes imposed by most states and some municipalities on specified kinds of retail transactions conducted within the state or city’s geographic boundaries.

An owner of one share of stock in a company that has only two shares outstanding is a 50% owner and can effectively control the company. However, an owner of one share in a company that has a million shares outstanding has very little voting influence and percentage rights to dividends.

The higher the coefficient, the better, in terms of accurately breaking down the fixed and variable costs components and predicting future costs. Generally contra revenue account examples assumed when 51% of the outstanding common stock of another company is owned, although effective control can sometimes be achieved with a lower percentage.


This inconsistency in application is due to the attitude of conservatism that prevails in accounting rules and standards. An approach used to segregate the fixed and variable components of a mixed cost which is necessary prior to performance of CVP analysis. The high-low method utilizes two points of reference in the determination of fixed and variable cost components; costs for the period of highest volume and costs for the period of lowest volume. This approach is objective but generally inferior to the scattergraph method, which includes analysis of mixed cost behavior for more than just two periods in determining fixed and variable components.

It measures how much profit was generated from the shareholders investment. Future obligations of the company that are reasonable possible but not yet probable. These obligations are NOT recorded in the financial statements but are disclosed in the notes.

In an arm’s-length transaction, an asset’s cost is also its fair market value at the date of acquisition. Under GAAP, the book value of an asset is based on its historical cost even if the asset has appreciated in value subsequent to its acquisition. On the other hand, decreasing asset values below book values may require asset write-downs.

contra revenue account examples

What Is A Contra Account & Why Is It Important?

The costs are separated into different overhead cost activities and then allocated to the products and services by the corresponding overhead cost driver. This method provides additional more accurate data to help management make decisions; however, this system is typically much more expensive than a traditional product costing system. Other income includes all revenues generated by a company outside of its normal operations.

Allowance For Doubtful Accounts And Bad Debt Expenses

Deficits are sometimes referred to as “retained deficits,” “accumulated deficits” or “accumulated losses.” The difference between the amount of income tax expense reported in the company’s income statement and the amount actually payable to the government. Companies are required to report deferred income taxes so that they are not in violation of the matching principle. The criteria a company uses to determine the credit worthiness of customers wishing to buy a company’s goods or services on account. Credit policies may include a minimum credit rating from a recognized rating service and/or verification of income before extensions of credit are made to new customers.

Leave a Reply

Your email address will not be published. Required fields are marked *