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Commission Received in Advance : Accounting Treatment with Journal Entry and Accounting Equation When a business receives a commission payment before completing the agreed services, the amount received is not considered earned revenue . Instead, it represents a current liability because the business still has an obligation to provide the promised services. This concept is important in accrual accounting, where revenue is recognized only after it has been earned, regardless of when cash is received. What Is Commission Received in Advance? Commission received in advance (also called Unearned Commission ) is money collected from a customer before the related services have been performed. Since the business still owes the customer the agreed services, this amount is recorded as a current liability on the balance sheet. Once the services are completed, the liability is reduced, and the amount is recognized as commission revenue. Accounts Involved Receiving commission in advance affects ...

Net Cost of Goods Purchased: How to Calculate It and Record the Discount (With Journal Entries) When a business purchases inventory on credit, suppliers often offer an early payment discount. Understanding how to calculate the Net Cost of Goods (NCOG) and record the correct journal entries is essential for accounting students, business owners, and anyone preparing for accounting exams. Let's work through the example step by step. Question Invoice Price: $15,000 Credit Terms: 2/10, n/30 This means: The purchaser receives a 2% discount if payment is made within 10 days . Otherwise, the full invoice amount is due within 30 days . The question asks: What is the Net Cost of Goods (NCOG) if the purchaser pays within the discount period? Step 1: Calculate the Purchase Discount The purchase discount is calculated using the invoice price. Formula: Purchase Discount = Invoice Price × Discount Rate Calculation: Invoice Price = $15,000 Discount Rate = 2% Purchase Discount = $15,000 × 2% ...

The correct option of this multiple choice (mcq) is (b), as explained below: We are given the following: Credit Sale = $1,400 Terms = 2/10, n/30 which means that a discount of 2% is given to customers if the payment is made within 10 days of the date of credit sale made to customer while the full or net amount is due within 30 days. Required: Amount of the Payment Received in full on July 24 = ? As, the customer returned the goods of $100 (sale return), may be due to defective or damaged goods, whatever the case may be, so we deduct sale return from the total goods sold to customer on account in order to calculate net credit sale as shown below: Net Credit Sale = Total Credit Sale - Sale Return = $1,400 - $100 = $1,300 Calculation of Discount Here, we need to calculate discounted amount as the payment is received within 10 days, i.e., counting from July 15 to July 24 equals to 10 days which is within discount period of 10 days. Any payment received after July 24,...

The correct option of this multiple choice question (mcq) is (b), as under Perpetual Inventory System, assets or goods or merchandises purchased from suppliers for cash or on account are considered as the parts of inventory account unlike under periodic inventory system these are recorded separately in the books of accounts (as purchases account) of company’s business. For example, if the company purchased assets of $5,000 from suppliers for cash and decided not to use in the business but to resale these in the market for the purpose of earning revenues for the business. The journal entry to record under perpetual inventory system is shown below:                                                    Inventory a/c  $5,000                                       ...

The correct option of this multiple choice question (mcq) is (c), as a moving company deals in services and provides services to clients against the fees received from clients during the accounting period. Examples of moving companies include consulting firm, law firms, rental companies, etc. In service company’s business, inventory valuation is not required as the service business is not dealt with inventory or goods held for sale purposes during the working hours of the business. So, in merchandising or trading business, finished goods inventory (both beginning and ending) are considered. How Is The Income Statement Of A Merchandising Company Different From That Of A Service Company? As the Merchandising Company (MC) deals with buying and selling of goods, so cost of goods sold is calculated which is calculated as shown below: Cost of Goods Sold (COGS) = Beginning Inventory + Purchases - Ending Inventory In MC, the Income Statement includes the following items as shown below: (i...

The correct option of this multiple choice (mcq) is a, as under retail method of inventory, we multiply the ending inventory at retail price by the cost-to-retail ratio in order to calculate the estimated cost of Ending Inventory (EI) without going into inventory details for physical counting. This method is suitable for businesses which have large volume of inventory. The formula used for the calculation of ending inventory at cost under Retail Inventory Method (RIM) is divided into two parts which are shown below: Ending Inventory At Retail = Retail Value of Goods Available For Sale - Net Sales Now, multiply EI at retail price by cost-to-retail ratio as shown below: Ending Inventory At Cost = Ending Inventory At Retail X Cost-To-Retail Ratio Examples: We have the following data to calculate EI at cost Beginning Inventory (BI) = $5,000 Purchases at cost = $15,000 BI at Retail = $10,000 Purchases at retail = $30,000 Net Sales = $35,000 Here Cost price of goods available for sale =...

The correct option of this multiple choice question (mcq) is (a), as this ratio shows how many days or time taken by a company to acquire, sell and replace inventory. The average of merchandise and the number of days of sales in current inventory will decide this ratio. If this ratio is small, then it shows that the company’s management is effective in selling merchandise to customers in less days. On the other hand, if this ratio is large, then it means that the company takes more days in selling its current stock of merchandise to customers due to poor inventory management and overstock problems. The formula to calculate this ratio is shown below: Number Of Days’ Sales In Inventory (DSI) = Average Inventory / Average Daily Cost Of Goods Sold The above formula can also be written as shown below: DSI = Average Inventory / Cost of Goods Sold X 365 Here AI is equal to OI plus CI divided by two (OI + CI / 2) Example: If AI is $4,000 and cost of goods sold is $60,000 during the accoun...