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• 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
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.
+ –
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
• 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
• 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.