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hi everyone this is our first video in the short-term operating assets cash and receivable series and in this short introduction video we're going to be talking about the contra revenue accounts as well as some issues and accounting and receivables so let's just get started and recall that when you sell inventory there's two entries you have to record the first entry is to record the sale the revenue and the either the account receivable if you sold it on account or cash if you sold it for cash and the second entry you have to make is the recording of the expense or the cost of the sale so the cost of goods sold is recorded as well as the reduction of the inventory so an you have your two entries when you make a sale typically you're gonna you're going to credit your sales revenue account when you sell inventory this is the amount that you have earned from selling that inventory and you have to record the cost of what you sold so you paid something for that inventory or you paid some price to create that inventory whatever depending on what type of business you are and this is called cost of goods sold so again this is the cost of the inventory that you sold to your customers and usually if you are a merchandiser or manufacturing company this is going to be the largest expense that you have so now let's turn our attention to contra sales accounts and the first one we want to look at is sales returns and allowances this is when a customer actually returns the goods to the seller or the seller may grant a reduction in price to the customer and we call this a contra revenue because it effectively reduces your net sales so remember you're not going to debit your sales revenue account when someone returns something you always credit sales revenue to reduce your sales effectively we're actually going to debit something called sales returns and allowances that's what to effectively reduce our total sales in addition we may sometimes give a customer a discount maybe they paid early which we want them to do so we give them an incentive to to send in their payment early and that's called a sales discount this is also a contra revenue account so now that we have our sales revenue we have two contra revenue accounts we can compute net sales we do that by taking our sales revenue less the two contra accounts so less sales returns and allowances and less our sales discounts account that gives us what's called net sales remember that we're net simply means that something's been taken out so net income taxes have been taken out so net sales something's been taken out you see the word net that means we have reduced sales with those contra revenue accounts and it's something else I want to talk briefly about here is delivery expense this is when the seller pays to get the product to the customer we call this Freight out in other words but don't get that confused with Freight in remember Freight in is not a delivery expense Freight in is when the buyer pays to get the product to the buyer to themselves and that's actually included as part of the cost of the inventory so please make sure you understand the difference in Freight in and Freight out so now let's talk briefly about how these receivables that you've booked now because you've sold something actually appears on the balance sheet so the balance sheet of course houses all the assets and receivables are assets so the balance sheet should report receivables that they mount the company expects to collect so this is your net realizable value so if you have sold something and you booked an account receivable we probably don't expect to collect them all there are going to be some times we're going to have customers that aren't going to pay us and we have those doubtful accounts we call them so we're going to figure out in the next few videos where that how to calculate that allowance for all accounts but on the balance sheet it's going to be it's going to be presented as accounts receivable less your allowance for doubtful accounts and that's going to give us our net account receivables there's that we're net again so remember that simply means something has been taken out in this case we have taken out what we don't expect to collect from our customers and on the income statement the flip side of that the income statement should report the expense necess that is associated with the failure to collect so if you don't expect to collect from some of your customers then you also have to book that as an expense on the income statement to effectively reduce your taxable income and this is called a bad debt expense you also may may see it kind of uncollectible counting spins don't forget if you enjoyed the video give it a thumbs up and questions and comments are always welcome