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College Accounting Heintz & Parry 20 th Edition

College Accounting - MCCChorowitk/documents/Chapter10_003.pdf · Describe merchandise sales transactions. • Purchases merchandise from ... merchandise One is sent to accounting

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College

Accounting

Heintz & Parry20th Edition

Accounting for Sales

and Cash Receipts

10Chapter

1

Describe merchandise

sales transactions.

• Purchases merchandise from vendors/suppliers and sells that merchandise to customers

• A sale is a transfer of merchandise from one business or individual to another in exchange for cash or a promise to pay cash

• Sells to final consumers

– Evidenced by:

Cash register tape

Sales ticket

One copy of the sales ticket is given to the customer and the other copy is sent to accounting

• Purchases merchandise from the manufacturer

• Sells to retailers

Usually “on account”

• A sales invoice is generated for each sale

One is sent to the customer as a bill for the

merchandise

One is sent to accounting to record the sale

One is shipped with the merchandise

• Issued by the seller indicating the customer’s accounts receivable account has been credited for the amount of a:

Returno Merchandise returned for a refund

Allowanceo Price reduction granted by the seller because of

defects or other problems with the merchandise

• One copy of the credit memo is sent to the customer

• One copy is sent to accounting

2

Describe and use

merchandise sales

accounts.

SALES SALES TAX PAYABLE

SALES RETURNS

AND ALLOWANCES SALES DISCOUNTS

SALES

DR. CR.

+

A REVENUE account used to record sales of

merchandise.

The account is credited for the

selling price of merchandise

sold during the period.

DATE DESCRIPTION PR DEBIT CREDIT

Cash1

2

3

4

5

6

7

8

9

10

11

Example:

Made a $100 cash sale.

100 00

Sales 100 00

Made cash sale

DATE DESCRIPTION PR DEBIT CREDIT

Cash1

2

3

4

5

6

7

8

9

10

11

What if this sale had been made on

account?

100 00

Sales 100 00

Made cash sale

DATE DESCRIPTION PR DEBIT CREDIT

1

2

3

4

5

6

7

8

9

10

11

We would debit the accounts receivable

account instead of Cash.

100 00Accts. Receivable/Customer

DATE DESCRIPTION PR DEBIT CREDIT

1

2

3

4

5

6

7

8

9

10

11

Accounts Receivable is followed by a

slash (/) and the name of the specific

customer who owes the money.

100 00Accts. Receivable/Customer

DATE DESCRIPTION PR DEBIT CREDIT

1

2

3

4

5

6

7

8

9

10

11

100 00

Sales 100 00

Made credit sale

Accts. Receivable/Customer

The sales account is credited because a sale

has been made (even though the business has

not yet been paid for the merchandise).

SALES TAX PAYABLE

DR. CR.

+

A LIABILITY account used to record the taxes imposed on sales and owed to the taxing

authority.

The account is credited for the amount of tax

imposed on the sale.

SALES TAX PAYABLE

DR. CR.

+

A LIABILITY account used to record the taxes imposed on sales and owed to the taxing

authority.

The account is debited when the tax is paid to the

proper taxing authority.

DATE DESCRIPTION PR DEBIT CREDIT

1

2

3

4

5

6

7

8

9

10

11

Example:

Made a cash sale for $100 plus 5%

sales tax.

DATE DESCRIPTION PR DEBIT CREDIT

1

2

3

4

5

6

7

8

9

10

11

Sales tax would be $5 ($100 × 5%).

Therefore, cash received would be $105

($100 selling price + $5 tax).

Cash 105 00

DATE DESCRIPTION PR DEBIT CREDIT

1

2

3

4

5

6

7

8

9

10

11

Sales is credited for the selling price, not

the amount of cash received.

105 00

Sales 100 00

Cash

DATE DESCRIPTION PR DEBIT CREDIT

1

2

3

4

5

6

7

8

9

10

11

$5 sales tax is credited

to Sales Tax Payable.

Cash 105 00

Sales 100 00

Sales Tax Payable 5 00

Made cash sale

DATE DESCRIPTION PR DEBIT CREDIT

1

2

3

4

5

6

7

8

9

10

11

Accts. Receivable/Customer 105 00

Sales 100 00

Sales Tax Payable 5 00

Made cash sale

If the sale is made on account,

Accounts Receivable is debited

instead of cash.

SALES RETURNS

AND ALLOWANCES

DR. CR.

A CONTRA-REVENUE account used to record

sales returns and sales allowances. Shown as a

deduction from Sales on the income statement.

The account is debited when a customer

returns merchandise or an allowance is granted.

+ –

DATE DESCRIPTION PR DEBIT CREDIT

1

2

3

4

5

6

7

8

9

10

11

Example:

A credit customer, Susan Chang,

returns printer cartridges

(selling price $40 + $2 sales tax).

DATE DESCRIPTION PR DEBIT CREDIT

1

2

3

4

5

6

7

8

9

10

11

Sales Returns and Allowances is

debited for the selling price.

Sales Returns and Allowances 40 00

DATE DESCRIPTION PR DEBIT CREDIT

1

2

3

4

5

6

7

8

9

10

11

Sales Tax Payable is

debited for the tax of $2.

Sales Returns and Allowances 40 00

Sales Tax Payable 2 00

DATE DESCRIPTION PR DEBIT CREDIT

1

2

3

4

5

6

7

8

9

10

11

Accounts Receivable is

credited for $42.

Sales Returns and Allowances 40 00

Sales Tax Payable 2 00

Accts. Receivable/S. Chang 42 00

Issued credit memo for

returned merchandise

SALES DISCOUNTSDR. CR.

A CONTRA-REVENUE account used to record

discounts given to customers who buy

merchandise on account to encourage prompt

payment.

The account is debited for the amount of the cash

discount at the time of payment.

+ –

2/10, n/30

2% discount off

sales price

2/10, n/30

If paid within 10 days

2/10, n/30

Or the total amount is due

2/10, n/30

Within 30 days

1/10, n/30

1% discount if paid within 10 days

or

Total amount due within 30 days

2/eom, n/60

2% discount if paid before

end of month

or

Total amount due within 60 days

3/10 eom, n/60

3% discount if paid within 10 days

after end of month

or

Total amount due in 60 days

DATE DESCRIPTION PR DEBIT CREDIT

1

2

3

4

5

6

7

8

9

10

11

Example:

Merchandise was sold for $100 with credit terms of

2/10, n/30, and cash is received within the

discount period.

DATE DESCRIPTION PR DEBIT CREDIT

1

2

3

4

5

6

7

8

9

10

11

Accts. Receivable/Customer 100 00

Sales 100 00

Made sale on account

The original sale on account

is recorded at the full sales

amount.

DATE DESCRIPTION PR DEBIT CREDIT

1

2

3

4

5

6

7

8

9

10

11

Payment is received within the

discount period and the 2% discount is

taken by the customer.

($100 sale × 2% discount)

Cash 98 00

Sales Discounts 2 00

DATE DESCRIPTION PR DEBIT CREDIT

1

2

3

4

5

6

7

8

9

10

11

Cash 98 00

Sales Discounts 2 00

Accts. Receivable/Customer 100 00

Received cash on account

Sales Returns and Allowances and

Sales Discounts are deducted

from Sales in the revenue section

of the income statement.

SalesLess: Sales returns and allowances

Sales discounts

$38,500$200

140 340

SalesLess: Sales returns and allowances

Sales discounts

Net Sales

$38,500$200

140 340

$38,160

3

Describe and use the

accounts receivable

ledger.

• In the general ledger account:

Step 1: Enter the date.

Step 2: Enter the amount of the transaction.

Step 3: Enter the new balance.

Step 4: Enter the journal page number.

• In the journal:

• Step 5: Enter the ledger account number in the PR

column.

• A separate “subsidiary” ledger

• Contains an individual accounts receivable account

for each customer

• Often numbered

• Filed either alphabetically or numerically

• A summary accounts receivable account

maintained in the general ledger is the controlling

account

• In the accounts receivable ledger account:

Step 1: Enter the date.

Step 2: Enter the amount of the transaction.

Step 3: Enter the new balance.

Step 4: Enter the journal page number.

• In the journal:

Step 5: Enter a slash (/) followed by a check mark () in the PR column.

DATE DESCRIPTION PR DEBIT CREDIT

1

2

3

4

5

6

7

8

9

10

11

Let’s review the posting for this

transaction.

Accts. Receivable/E. Lorenzo 1,596 00

Sales 1,520 00

Sales Tax Payable 76 00

Sale No. 133C

Apr. 420--

DATE DESCRIPTION PR DEBIT CREDIT

1

2

3

4

5

6

7

8

9

10

11

Accts. Receivable/E. Lorenzo 1,596 00

Sales 1,520 00

Sales Tax Payable 76 00

Sale No. 133C

Apr. 4

A $1,596 debit is posted to the general ledger

accounts receivable account.

20--

Account: Account No.

DATE ITEM PR DR. CR.BALANCE

DR. CR.

ACCOUNTS RECEIVABLE 122

20--

Apr. 1

1,596

12,000

4

Balance

13,596

This entry is posted in the same manner

as all other general ledger postings.

J8

DATE DESCRIPTION PR DEBIT CREDIT

1

2

3

4

5

6

7

8

9

10

11

The accounts receivable account number

is entered in the PR column.

Accts. Receivable/E. Lorenzo 1,596 00

Sales 1,520 00

Sales Tax Payable 76 00

Sale No. 133C

Apr. 4 12220--

DATE DESCRIPTION PR DEBIT CREDIT

1

2

3

4

5

6

7

8

9

10

11

Now we need to post to the

individual customer’s account.

Accts. Receivable/E. Lorenzo 1,596 00

Sales 1,520 00

Sales Tax Payable 76 00

Sale No. 133C

Apr. 4 12220--

Name:

DATE ITEM PR DEBIT CREDIT BALANCE

Enrico Lorenzo

20--

Apr. 1,5964

The date is entered, the amount is recorded, the

balance is updated, and the journal page

number is referenced.

Address: 5240 Tousley Court, Indianapolis, IN 46224-5678

1,596J8

DATE DESCRIPTION PR DEBIT CREDIT

1

2

3

4

5

6

7

8

9

10

11

Sales Returns and Allowances 40 00

Sales Tax Payable 2 00

Accts. Rec./S. Chang 42 00

Returned merchandise—

May 5

Credit Memo #72

Now let’s look at the posting

for a sales return entry.

20--

DATE DESCRIPTION PR DEBIT CREDIT

1

2

3

4

5

6

7

8

9

10

11

Sales Returns and Allowances 40 00

Sales Tax Payable 2 00

Accts. Rec./S. Chang 42 00

Returned merchandise—

May 5

Credit Memo #72

401.1

Sales Returns and Allowances

is posted in the normal manner.

Its account number is

recorded in the PR column.

20--

Returned merchandise—

DATE DESCRIPTION PR DEBIT CREDIT

1

2

3

4

5

6

7

8

9

10

11

Sales Tax Payable is also

posted in the normal manner.

Its account number is

recorded in the PR column.

Sales Returns and Allowances 40 00

Sales Tax Payable 2 00

Accts. Rec./S. Chang 42 00

May 5

Credit Memo #72

401.1

231

20--

DATE DESCRIPTION PR DEBIT CREDIT

1

2

3

4

5

6

7

8

9

10

11

Sales Returns and Allowances 40 00

Sales Tax Payable 2 00

Accts. Rec./S. Chang 42 00

Returned merchandise—

May 5

Credit Memo #72

401.1

231

122/

20--

The $42 credit is posted to the accounts receivable

controlling account and to the subsidiary ledger

account for S. Chang.

DATE DESCRIPTION PR DEBIT CREDIT

1

2

3

4

5

6

7

8

9

10

11

Cash 1,596 00

Accts. Rec./E. Lorenzo

Received cash on account

Apr. 14

Cash receipt transactions

are posted in a similar manner.

1,596 00

20--

DATE DESCRIPTION PR DEBIT CREDIT

1

2

3

4

5

6

7

8

9

10

11

Cash 1,596 00

Accts. Rec./E. Lorenzo

Received cash on account

Apr. 14

Cash is posted as usual.

1,596 00

10120--

DATE DESCRIPTION PR DEBIT CREDIT

1

2

3

4

5

6

7

8

9

10

11

Cash 1,596 00

Accts. Rec./E. Lorenzo

Received cash on account

Apr. 14

1,596 00

101

The credit is posted to the accounts receivable

controlling account and to the subsidiary ledger account

for E. Lorenzo.

122/

20--

• Are similar to cash sales because cash is available

to the business as soon as an electronic deposit is

made at the end of the day

• The credit card company makes the electronic

deposit to the merchandiser’s bank account for the

gross amount of credit card sales less a processing

fee

DATE DESCRIPTION PR DEBIT CREDIT

1

2

3

4

5

6

7

8

9

10

11

Made a bank credit card sale of $100 plus sales

tax of $5. The seller will receive cash of $100.80.

($105 – 4% fee)

Cash 100 80May 6

DATE DESCRIPTION PR DEBIT CREDIT

1

2

3

4

5

6

7

8

9

10

11

Bank Credit Card Expense

is debited for the processing fee.

Cash 100 80

Bank Credit Card Expense 4 20

May 6

DATE DESCRIPTION PR DEBIT CREDIT

1

2

3

4

5

6

7

8

9

10

11

Cash 100 80

Bank Credit Card Expense 4 20

Sales 100 00

May 6

Made credit card sale

Sales Tax Payable 5 00

4

Prepare a schedule of

accounts receivable.

• Prepared to verify that the sum of the accounts receivable ledger balances equals the Accounts Receivable balance

• Is an alphabetical listing of customer accounts and their balances

• Usually prepared at the end of the month

• The total calculated in the schedule is compared with the balance in Accounts Receivable in the general ledger

$ 2,302Helen Avery

Susan Chang

Heidi Schwitzer

Ken Ulmet

Vivian Winston

651

3,563

3,315

4,500

$14,331

This should be the balance in the accounts

receivable controlling account.

• If the schedule of accounts receivable total and the

Accounts Receivable balance do not agree:

Step 1: Verify the total of the schedule.

Step 2: Verify the postings to the accounts receivable

ledger.

Step 3: Verify the postings to Accounts Receivable in

the general ledger.