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Chapter Ten
The Sales Journal and the Purchases
Journal
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 2
Performance Objectives
1. Describe the specific accounts used by a merchandising firm
2. Journalize transactions in a sales journal
3. Post sales journal transactions to an accounts receivable ledger and a general ledger
4. Prepare a schedule of accounts receivable
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 3
Performance Objectives
5. Journalize sales returns and allowances, including credit memorandums and returns involving sales tax, in a general journal, and post to the accounts receivable ledger and general ledger
6. Journalize transactions in a three-column purchases journal
7. Post purchases journal transactions to an accounts payable ledger and a general ledger
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 4
Performance Objectives
8. Prepare a schedule of accounts payable
9. Journalize transactions involving purchases returns and allowances in a general journal, and post to the accounts payable ledger and general ledger
10.Describe the procedures for handling freight charges on merchandise and other goods
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 5
Special Journals
• Books of original entry in which specialized types of repetitive transactions are recorded– Sales journal– Purchases journal– Cash receipts journal– Cash payments journal
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 6
Performance Objective 1
Describe the specific accounts used by a merchandising firm
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 7
Merchandising Accounts = + + -
+ - - + - + - + + -DR CR DR CR DR CR DR CR DR CR
+ - - + - + + -DR CR DR CR DR CR DR CR
+ - - +DR CR DR CR
+ - - +DR CR DR CR
+ -DR CR
Expenses
MerchandiseInventory
Sales TaxPayable Sales Purchases
Assets Liabilities Owner's Equity Revenues
Freight In
Sales Returnsand Allowances
Purchases Returnsand Allowances
Sales DiscountPurchasesDiscounts
ContraContraAccountsAccounts
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 8
Merchandise Inventory
• A stock of goods (an asset account) that a company buys and intends to resell, in the same physical condition, at a profit
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 9
Sales Tax
• A tax levied by a state or city government on the retail sale of goods and services
• Paid by the consumer but collected by the retailer
• Collection of tax recorded in Sales Tax Payable account
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 10
Sales Account
• A revenue account for recording the sale of merchandise
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 11
Sales Returns and Allowances Account
• The account a seller uses to record the physical return of merchandise by customers or a reduction in a bill because merchandise was damaged
• Treated as a deduction from sales
• Usually evidenced by a credit memorandum issued by the seller
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 12
Sales Discount Account
• An account that records a deduction from the original price, granted by the seller to the buyer for the prompt payment of an invoice
• Sales discount is treated as a deduction from sales
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 13
Purchases Account
• An account for recording the cost of merchandise acquired for resale
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 14
Purchases Returns and Allowances Account
• An account that records a company’s return of merchandise it has purchased or a reduction in the bill because of damaged merchandise
• Treated as a deduction from Purchases
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 15
Purchases Discount Account
• An account that records cash discounts granted by suppliers in return for prompt payment
• Treated as a deduction from Purchases
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 16
Freight In Account
• The account used to record transportation charges on incoming merchandise intended for resale
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 17
Invoices
• Business forms prepared by the seller that list the items shipped, their cost, the terms of the sale, and the mode of shipment
• May state freight charges
• Issued by seller
• Source document that serves as evidence for recording the transaction
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 18
Invoices—Whose Point of View?
• Seller’s point of view:– Sales invoice– Shows increase in sales revenue
• Buyer’s point of view:– Purchases invoice– Shows increase in purchases
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 19
Customers and Vendors
• People or businesses we buy from are called:– Suppliers– Creditors– Vendors
• People or businesses who buy from us are called:– Customers
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 20
Invoices
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 21
Invoices
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 22
Performance Objective 2
Journalize transactions in a sales journal
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 23
Sales Journal
• A special journal for recording the sale of merchandise on account only
• Abbreviated S in Post. Ref. column of ledgers
• DR = CR for every line
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 24
Columns in the Sales Journal
• Date
• Invoice Number
• Customer’s Name
• Post. Ref.
• Accounts Receivable Debit
• Sales Tax Payable Credit
• Sales Credit
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 25
Transactions in a Sales Journal with More Than One Column
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 26
Performance Objective 3
Post sales journal transactions to an accounts receivable ledger and a general ledger
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 27
Some Definitions
• Controlling account– An account in the general ledger that summarizes
the balances of a subsidiary ledger
• Accounts Receivable– A controlling account in the general ledger
• Subsidiary ledger– A group of accounts representing individual
subdivisions of a controlling account
• Accounts receivable ledger– A subsidiary ledger that lists the individual
accounts of charge customers in either alphabetical or numerical order
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 28
Posting to the General Ledger
1. Draw a single line below the amount columns to indicate the last date in the period
2. Draw double lines below the Date column, Post. Ref. column, and column totals
3. Check that DR = CR4. Post each column total as a summarizing
entry to general ledger at the end of the period
5. After posting, write account numbers in parentheses below column totals
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 29
Posting to the Accounts Receivable Ledger
1. Post amount to customer’s account in the accounts receivable subsidiary ledger after recording each transaction
2. After posting, place check mark in the sales journal Post. Ref. column next to the customer's name
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 30
Post Sales Journal Transactions to an Accounts Receivable Ledger and a General Ledger
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 31
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 32
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 33
Accounts Receivable Ledger: An Example
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 34
Performance Objective 4
Prepare a schedule of accounts receivable
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 35
A Schedule of Accounts Receivable
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 36
Performance Objective 5
Journalize sales returns and allowances, including credit memorandums and returns involving sales tax, in a general journal, and post to the accounts receivable ledger and general ledger
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 37
Credit Memorandum
• A written statement indicating a seller’s willingness to reduce the amount of a buyer’s debt
• Seller records the amount of the credit memorandum in the Sales Returns and Allowances account
• Buyer records the amount of the credit memorandum in the Purchases Returns and Allowances account
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 38
Credit Memorandum
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 39
Journalize Sales Returns and Allowances in General Journal
• Journal entry– Credit Accounts Receivable– Debit Sales Returns and Allowances
• Why a credit memorandum?– Credit is from the seller’s point of view– Seller credits the buyer’s account
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 40
General Journal Entry for Sales Returns and Allowances
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 41
Post Sales Returns and Allowances
• Post once to:– Sales Returns and Allowances account
• Post twice to Account Receivable accounts:– Accounts Receivable account in the general
ledger• Use account number 113 for posting reference
– Customer’s individual account in the accounts receivable subsidiary ledger
• Use √ for posting reference
• After posting, Post. Ref. column in the general journal shows 113/√
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 42
Post to Sales Returns and Allowances
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 43
Post to Accounts Receivable
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 44
Sales Returns Involving Sales Tax
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 45
Purchase Requisition
• A form used to request that the Purchasing Department buy something
• Intended for internal use within a company
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 46
Purchase Requisition
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 47
Purchase Order
• A written order from the buyer of goods to the supplier, listing the items wanted and the terms of the transaction
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 48
Purchase Order
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 49
Purchase Invoice
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 50
Purchases Journal
• A special journal used to record the buying of goods on account
• Used to record the purchase of merchandise only
• Debits must equal credits on each line
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 51
Purchases Journal
• The flip side of the sales journal
• Point of view– The company selling uses the sales journal– The company buying uses the purchase
journal– Companies use both!
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 52
Performance Objective 6
Journalize transactions in a three-column purchases journal
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 53
Columns in a Three-Column Purchases Journal
• Date• Supplier’s Name• Invoice Number• Invoice Date• Terms
• Post. Ref.• Accounts Payable
Credit• Freight In Debit• Purchases Debit
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 54
Entries in a Three-Column Purchases Journal
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 55
Performance Objective 7
Post purchases journal transactions to an accounts payable ledger and a general ledger
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 56
Some Definitions
• Accounts payable ledger– A subsidiary ledger that lists the individual
accounts of creditors in either alphabetical or numerical order
• Accounts Payable – A controlling account in the general ledger– Account to which the accounts payable
total from the purchases journal is posted at the end of the period
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 57
Posting Transactions to the General Ledger at the End of the Period
• Draw a single line below the last amounts in the period
• Draw double lines below period’s ending date and totals
• Crossfoot– Does Accounts Payable column equal sum of all debits?– Use horizontal and vertical addition to prove DR = CR
• Post all totals to general ledger• After posting, place account numbers in parentheses
below column totals in purchases journal• P in the Post. Ref. column of the ledger account
designates the purchases journal
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 58
Posting Transactions to the Accounts Payable Ledger
• Post amount to supplier’s account each time you record a business transaction
• After posting, place check mark in the purchases journal Post. Ref. column
• P in the Post. Ref. column of the ledger account designates the purchases journal
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 59
Post Transactions from a Purchases Journal: An Example
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 60
Post Transactions to an Accounts Payable Ledger: An Example
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 61
Performance Objective 8
Prepare a schedule of accounts payable
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 62
Prepare a Schedule of Accounts Payable
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 63
Performance Objective 9
Journalize transactions involving purchases returns and allowances in a general journal, and post to the accounts payable ledger and general ledger
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 64
Purchases Returns and Allowances
• Journalize transactions involving purchases returns and allowances in the general journal
• Post to:– Accounts payable subsidiary ledger– Accounts Payable general ledger account
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 65
Journalize and Post a Purchase Return
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 66
Journalize and Post a Purchase Return
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 67
Performance Objective 10
Describe the procedures for handling freight charges on merchandise and other goods
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 68
Accounts Used to Record Freight Charges on Merchandise and Other Goods
• Debit Freight In for transportation charges on incoming merchandise intended for resale
• Debit Delivery Expense for transportation charges on merchandise sold and being delivered to customers
• Debit asset accounts for freight costs that apply to assets purchased – For example, $300 freight on a large freezer for a
restaurant would be debited to that freezer account
– Part of the cost of that asset
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 69
FOB Destination
• Shipping terms under which the seller pays the freight charges and includes them in the selling price
• Title or ownership changes hands when the buyer receives the goods
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 70
FOB Shipping Point
• Shipping terms under which the buyer pays the freight charges between the point of shipment and the destination
• Payment may be made directly to the carrier upon receiving the goods or to the supplier if the supplier prepaid the freight charge on behalf of the buyer
• Title or ownership changes hands when goods are transferred to the freight company
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 71
Internal Control
• Plans and procedures built into the accounting system with the following objectives:– To protect assets against fraud and waste– To provide accurate accounting data– To promote an efficient operation– To encourage adherence to management
policies
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 72
Demonstration Problem
• Journalize and post one transaction in the sales journal
• Look at a schedule of accounts receivable
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 73
Page 32Sales Tax 8.00%
Inv.No. Customer's Name
Post.Ref.
AccountsReceivable
Debit
Sales TaxPayableCredit
SalesCredit
1 2002 12 July 1 788 Denise Hogan 1,438.83 106.58 1,332.25 23 34 45 56 67 78 89 9
10 1011 1112 1213 1314 1415 1516 1617 1718 1819 1920 2021 2122 31 1,438.83 106.58 1,332.25 22
Date
Sales Journal
Transaction on One Line
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 74
Post to Subsidiary Ledger
Denise Hogan322 West James, Apartment A9Whalen, WA 98671
ItemPost.Ref. Debit Credit Balance
2005July 1 S 32 1,438.83 1,438.83
Total Owed: 1,438.83
Address
Date
Name
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 75
Place Post. Ref. in Journal!Page 32
Sales Tax 8.00%
Inv.No. Customer's Name
Post.Ref.
AccountsReceivable
Debit
Sales TaxPayableCredit
SalesCredit
1 2005 12 July 1 788 Denise Hogan √ 1,438.83 106.58 1,332.25 23 34 45 56 67 78 89 9
10 1011 1112 1213 1314 1415 1516 1617 1718 1819 1920 2021 2122 31 1,438.83 106.58 1,332.25 22
Date
Sales Journal
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 76
Total at End of Period and Post TotalsPage 32
Sales Tax 8.00%
Inv.No. Customer's Name
Post.Ref.
AccountsReceivable
Debit
Sales TaxPayableCredit
SalesCredit
1 2005 12 July 1 788 Denise Hogan √ 1,438.83 106.58 1,332.25 23 6 789 The River Riders √ 978.75 978.75 34 8 790 Chris Turk √ 4,590.00 340.00 4,250.00 45 9 791 Riverside Rentals √ 15,721.00 15,721.00 56 14 792 Kent Recreation Department √ 21,038.40 1,558.40 19,480.00 67 17 793 Maple Van Auken √ 3,980.34 294.84 3,685.50 78 23 794 River Tours, Inc √ 7,038.00 7,038.00 89 23 795 Vickie and Larry Currie √ 842.08 62.38 779.70 9
10 24 796 Sundowner Tours √ 6,144.00 6,144.00 1011 31 797 Kathy Walker √ 398.90 29.55 369.35 1112 1213 1314 1415 1516 1617 1718 1819 1920 2021 2122 31 62,170.30 2,391.75 59,778.55 22
Date
Sales Journal
Post
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 77
Post Accounts Receivable
Account Accounts Receivable Account No. 114
Debit Credit2005July 1 Balance √ 65,458.04 65,458.04
10 J 168 23.25 65,434.7921 J 168 108.00 65,326.7931 S 32 62,170.30 127,497.09
General Ledger
Date ItemPost.Ref. Debit Credit
Balance
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 78
Post. Ref. = 114Page 32
Sales Tax 8.00%
Inv.No. Customer's Name
Post.Ref.
AccountsReceivable
Debit
Sales TaxPayableCredit
SalesCredit
1 2005 12 July 1 788 Denise Hogan √ 1,438.83 106.58 1,332.25 23 6 789 The River Riders √ 978.75 978.75 34 8 790 Chris Turk √ 4,590.00 340.00 4,250.00 45 9 791 Riverside Rentals √ 15,721.00 15,721.00 56 14 792 Kent Recreation Department √ 21,038.40 1,558.40 19,480.00 67 17 793 Maple Van Auken √ 3,980.34 294.84 3,685.50 78 23 794 River Tours, Inc √ 7,038.00 7,038.00 89 23 795 Vickie and Larry Currie √ 842.08 62.38 779.70 9
10 24 796 Sundowner Tours √ 6,144.00 6,144.00 1011 31 797 Kathy Walker √ 398.90 29.55 369.35 1112 1213 1314 1415 1516 1617 1718 1819 1920 2021 21
31 62,170.30 2,391.75 59,778.55114
Date
Sales Journal
( )Post
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 79
Post Sales Tax Payable
Account Sales Tax Payable Account No 213
Debit Credit2005July 1 Balance √ 3,085.19 3,085.19
14 CP 41 3,085.19 0.0021 J 168 8.00 8.0031 S 32 2,391.75 2,383.75
General Ledger
Date Item Debit CreditBalancePost.
Ref.
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 80
Post. Ref. = 213Page 32
Sales Tax 8.00%
Inv.No. Customer's Name
Post.Ref.
AccountsReceivable
Debit
Sales TaxPayableCredit
SalesCredit
1 2005 12 July 1 788 Denise Hogan √ 1,438.83 106.58 1,332.25 23 6 789 The River Riders √ 978.75 978.75 34 8 790 Chris Turk √ 4,590.00 340.00 4,250.00 45 9 791 Riverside Rentals √ 15,721.00 15,721.00 56 14 792 Kent Recreation Department √ 21,038.40 1,558.40 19,480.00 67 17 793 Maple Van Auken √ 3,980.34 294.84 3,685.50 78 23 794 River Tours, Inc √ 7,038.00 7,038.00 89 23 795 Vickie and Larry Currie √ 842.08 62.38 779.70 9
10 24 796 Sundowner Tours √ 6,144.00 6,144.00 1011 31 797 Kathy Walker √ 398.90 29.55 369.35 1112 1213 1314 1415 1516 1617 1718 1819 1920 2021 2122 31 62,170.30 2,391.75 59,778.55 2223 114 213 23
Date
Sales Journal
( ) ( )Post
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 81
Post Sales
Account Sales Account No 411
Post.Ref.
Debit Credit2005July 31 S 32 59,778.55 59,778.55
General Ledger
Date Item Debit CreditBalance
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 82
Post. Ref. = 411Page 32
Sales Tax 8.00%
Inv.No. Customer's Name
PostRef
AccountsReceivable
Debit
Sales TaxPayableCredit
SalesCredit
1 2005 12 July 1 788 Denise Hogan √ 1,438.83 106.58 1,332.25 23 6 789 The River Riders √ 978.75 978.75 34 8 790 Chris Turk √ 4,590.00 340.00 4,250.00 45 9 791 Riverside Rentals √ 15,721.00 15,721.00 56 14 792 Kent Recreation Department √ 21,038.40 1,558.40 19,480.00 67 17 793 Maple Van Auken √ 3,980.34 294.84 3,685.50 78 23 794 River Tours, Inc √ 7,038.00 7,038.00 89 23 795 Vickie and Larry Currie √ 842.08 62.38 779.70 9
10 24 796 Sundowner Tours √ 6,144.00 6,144.00 1011 31 797 Kathy Walker √ 398.90 29.55 369.35 1112 1213 1314 1415 1516 1617 1718 1819 1920 2021 2122 31 62,170.30 2,391.75 59,778.55 2223 114 213 411 23
Date
Sales Journal
( ) ( ) ( )
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 83
Page 32
Inv.No. Customer's Name
Post.Ref.
AccountsReceivable
Debit
Sales TaxPayableCredit
SalesCredit
1 2005 12 July 1 788 Denise Hogan √ 1,438.83 106.58 1,332.25 23 6 789 The River Riders √ 978.75 978.75 34 8 790 Chris Turk √ 4,590.00 340.00 4,250.00 45 9 791 Riverside Rentals √ 15,721.00 15,721.00 56 14 792 Kent Recreation Department √ 21,038.40 1,558.40 19,480.00 67 17 793 Maple Van Auken √ 3,980.34 294.84 3,685.50 78 23 794 River Tours, Inc √ 7,038.00 7,038.00 89 23 795 Vickie and Larry Currie √ 842.08 62.38 779.70 9
10 24 796 Sundowner Tours √ 6,144.00 6,144.00 1011 31 797 Kathy Walker √ 398.90 29.55 369.35 1112 1213 1314 1415 1516 1617 1718 1819 1920 2021 2122 31 62,170.30 2,391.75 59,778.55 2223 114 213 411 23
DR = CR62,170.30 Yes 62,170.30
Date
Sales Journal
Prove DR = CR
( ) ( ) ( )
Copyright © Houghton Mifflin Company. All rights reserved. 10 - 84
At the End of the Period, Track What Customers Owe You
Vickie and Larry Currie 842.08$ Denise Hogan 1,438.83 Kent Recreation Department 21,038.40 Chris Turk 4,590.00 Maple Van Auken 3,980.34 Kathy Walker 398.90 The River Riders 978.75 Riverside Rentals 15,721.00 River Tours 7,038.00 Sundowner Tours 6,144.00
Total Accounts Receivable 62,170.30$
Dean's KayaksSchedule of Accounts Receivable
July 31, 2005