Accounting For Sales And Accounts Receivable

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Chapter7Accounting for Salesand Accounts ReceivableSection 1: Merchandise SalesSection ObjectivesMcGraw-Hill1.Record credit sales in a salesjournal.2.Post from the sales journal tothe general ledger accounts. 2009 The McGraw-Hill Companies, Inc. All rights reserved.

Meet The Style Shop Mary Amos is the sole proprietor of the firm. The Style Shop is a merchandising business that sells thelatest fashion clothing for men, women, and children. It is a retail business.7-3

Journals Used byMerchandising BusinessesType of JournalPurposeSalesTo record sales of merchandise on creditPurchasesTo record purchases of merchandise on creditCash receiptsTo record cash received from all sourcesCash paymentsTo record all disbursements of cashGeneralTo record all transactions that are notrecorded in another special journal and alladjusting and closing entries7-4

Ledgers Used byMerchandising BusinessesContentType of LedgerGeneralAssets, liabilities, owner’s equity, revenue,and expense accountsAccountsreceivableAccounts for credit customersAccountspayableAccounts for creditors7-5

The Style ShopChart of AccountsASSETS101105CashPetty Cash Fund109111Notes ReceivableAccounts Receivable112116Allowance for Doubtful AccountsInterest Receivable121126Merchandise InventoryPrepaid Insurance127129Prepaid InterestSupplies501502PurchasesFreight In131132Store EquipmentAccumulated Depreciation - Store Equip.503504Purchases Returns and AllowancesPurchases Discounts141142Office EquipmentAccumulated Depreciation - Office Equip.EXPENSESREVENUE401451SalesSales Returns and Allowances491493Interest IncomeMiscellaneous IncomeCOST OF GOODS SOLD611612Salaries Expense - SalesSupplies Expense614617Advertising ExpenseCash Short or Over626634Depreciation Expense - Store EquipmentRent Expense637639Salaries Expense - OfficeInsurance Expense641643Payroll Taxes ExpenseUtilities Expense649651Telephone ExpenseUncollectible Accounts ExpenseOWNER’S EQUITY657658Bank Fees ExpenseDelivery Expense301302Mary Amos, CapitalMary Amos, Drawing659691Depreciation Expense - Office EquipmentInterest Expense399Income Summary693Miscellaneous ExpenseLIABILITIES201202Notes Payable — TradeNotes Payable — Bank205216Accounts PayableInterest Payable221222Social Security Tax PayableMedicare Tax Payable223225Employee Income Tax PayableFederal Unemployment Tax Payable227229State Unemployment Tax PayableSalaries Payable231Sales Tax Payable7-6

General Journal and General LedgerFour credit sales made on January 3, 8, 11, and 15require four separate entries in the general journal: Four debits to Accounts ReceivableFour credits to Sales Tax PayableFour credits to SalesFour descriptions7-7

GENERAL JOURNALDate20--DESCRIPTIONJan. 381115PAGEPOST.REF.DEBITAccounts ReceivableSales Tax PayableSalesSold merchandise on credit toRoy Anderson, Sales Slip 1101111231401432.00Accounts ReceivableSales Tax PayableSalesSold merchandise on credit toCathy Ball, Sales Slip 1102111231401648.00Accounts ReceivableSales Tax PayableSalesSold merchandise on credit toBarbara Coe, Sales Slip 1103111231401756.00Accounts ReceivableSales Tax PayableSalesSold merchandise on credit toAmalia Rodriguez, Sales Slip 056.00700.0024.00300.00

General LedgerACCOUNTDATE20-Jan.Accounts ReceivableEXPLANATIONPOST.REF.Balance J2J2J2J21381115ACCOUNTDATE20-Jan.1381115ACCOUNT OUNT NO.Sales Tax PayableDESCRIPTION POST.REF.CREDITDEBIT DEBITCREDIT756.00788.00836.00892.00916.00

General LedgerACCOUNTDATE20-Jan. 381115ACCOUNT NO.SalesDESCRIPTION ,000.00

Objective 1 Record credit sales in a sales journalIn a retail business such as The Style Shop, thedata needed for each entry is taken from a copyof the customer’s sales slip.7-11

The Style Shop2010 Trendsetter Lane400.00Dallas, TX 75268400.00S HarrisSales Tax 32.00Total 432.00Roy Anderson8913 South Hampton RoadDallas, TX 75232SALES JOURNALSALESACCOUNTSDATE SLIP CUSTOMER’S NAME POST. RECEIVABLENO.REF.DEBIT20-Jan. 3 1101 Roy Anderson 432.007-12PAGE1SALES TAXPAYABLESALESCREDITCREDIT32.00400.00

SALES JOURNALSALESACCOUNTSDATE SLIP CUSTOMER’S NAME POST. RECEIVABLENO.REF.DEBIT20-Jan. 0811091110Roy AndersonCathy BallBarbara CoeAmalia RodriguezFred WuLinda CarterKim RamirezMesia DavisAlma SanchezRoy AndersonTotals .00963.00267.505,886.00PAGE1SALES 0

Objective 2Post from the sales journal tothe general ledger accountsWith a sales journal it is not necessary to posteach credit sale individually to general ledgeraccounts.Instead, summary postings are made at the end ofthe month after the amount columns of the salesjournal are totaled.7-14

SALES JOURNALDATESALESSLIPNO.CUSTOMER’S NAMEPOST.REF.20-Jan. 3 1101Roy Anderson81102 Cathy Ball11 The1103generalBarbara Coeledger15 1104 Amalia Rodrigueznumbersare18account1105 FredWu21entered1106 Lindain Carterparentheses28 1107 Kim Ramirez29under1108 columnMesia Davis totals.31 1109 Alma Sanchez31 1110 Roy Anderson31TotalsACCOUNTSRECEIVABLEDEBIT 432.00648.00 ,886.00 (111)ACCOUNTDEBITCREDIT35886.007-15SALES TAXPAYABLECREDIT32.0048.0056.00700.0024.002 60.0036.008.0080.0072.0020.00436.00(231)5 NO.ACCOUNTAccounts ReceivableDATEEXPLANATION POST.1REF.20-Jan. 1Balance 2.008,478.00

SALESSLIPNO.DATE20-Jan. 11091110CUSTOMER’S NAME Roy AndersonCathy BallBarbara CoeAmalia RodriguezFred WuLinda CarterKim RamirezMesia DavisAlma SanchezRoy Anderson31 DATE11 Balance112325 6.008.0080.0072.0020.00ACCOUNT NO.Sales Tax PayableDESCRIPTION POST.REF.SALES TAXPAYABLECREDIT432.00648.00 6.00-012.0048.00

SALESSLIPNO.DATE20-Jan. 11091110CUSTOMER’S NAME20-Jan. DEBIT56.00324.00810.00486.00108.00 0.0072.0020.00436.00(231)ACCOUNT NO.SalesDESCRIPTION POST.REF.31 BalanceSALES TAXPAYABLECREDIT432.00648.00 756.00TotalsACCOUNT1DATE Roy AndersonCathy BallBarbara CoeAmalia RodriguezFred WuLinda CarterKim RamirezMesia DavisAlma SanchezRoy 50.00(401)40153BALANCEDEBITCREDIT45,450.00

Advantages of a Sales Journal Saves time, effort, and recording space Makes journalizing and posting more efficient Requires only three summary postings to the generalledger at the end of each month Allows division of work Improves the audit trail7-18

Chapter7Accounting for Salesand Accounts ReceivableSection 2: Accounts ReceivableSection ObjectivesMcGraw-Hill3.Post from the sales journal to the customers’accounts in the accounts receivable subsidiaryledger.4.Record sales returns and allowances in thegeneral journal.5.Post sales returns and allowances.6.Prepare a schedule of accounts receivable. 2009 The McGraw-Hill Companies, Inc. All rights reserved.

The Accounts Receivable LedgerNAMERoy AndersonADDRESSDATE8913 South Hampton, Dallas, Texas 75232-6002DESCRIPTIONPOST.REF.DEBITCREDITBALANCE20 -Jan.1 Balance3 Sales Slip 1101 S1432.00432.00864.00 The accounts receivable ledger has three money columns. The BALANCE column is presumed to contain debit amounts.7-20

Objective 3 Post from the sales journal to the customer’s accountsin the accounts receivable subsidiary ledgerEach credit sale recorded in the sales journal isposted to the appropriate customer’s account inthe accounts receivable ledger.7-21

The information is carried over from the sales journal to the A/RCustomer’s Ledger.SALES JOURNALPAGESALESACCOUNTSDATE SLIP CUSTOMER’SPOST. RECEIVABLENO. ACCOUNT DEBITED REF.DEBIT20-6Jan. 3NAME1101 Roy AndersonSALES TAXPAYABLESALESCREDITCREDIT432.0032.001 Balance3 Sales Slip 1101400.003Roy AndersonADDRESS 8913 South Hampton, Dallas, Texas 75232-6002214DATEDESCRIPTIONPOST.DEBITCREDITREF.20 -Jan.1 S1432.007-225BALANCE432.00864.00

When a credit customer pays an outstandingbill, the cash collected is first recorded in acash receipts journal.Let’s put it in the CASHRECEIPTS JOURNAL7-23

The cash is then posted to the individual customeraccount in the accounts receivable ledger.NAMERoy AndersonADDRESSDATE20 -Jan.8913 South Hampton Road, Dallas, TX 75232-6002DESCRIPTION1 Balance3 Sales Slip 11017POST.REF. 00864.00432.00Posted from page 1 of the cash receipts journal7-24

Objective 4 Record sales returns and allowances inthe general journalA sale is entered in the accounting recordswhen the goods are sold or the service isprovided.If something is wrong with the goods orservice, the firm may take a sales return, or give a sales allowance.7-25

A debit to the Sales Returns and Allowances account ispreferred to making a direct debit to Sales.Sales Returns and AllowancesReturnsandAllowances7-26

Business TransactionOn January 23 The Style Shop issued Credit Memorandum 101 for asales allowance to Fred Wu for merchandise purchased on account.The merchandise was damaged but still usable.The Style Shop150.00NAME: Fred WuADDRESS: 2010Trendsetter Lane150.00Dallas, TX 7526812.00PHONE:162.007-27

Sales AllowanceSales Returns andAllowances150Sales Tax PayableAccountsReceivable162127-28

Objective 5Post sales returns and allowancesEach sales return or allowance must beposted from the journal to theappropriate customer’s account in theaccounts receivable ledger.7-29

Posting from the General JournalDate20-Jan.NAMEADDRESSDATE20 -Jan.DESCRIPTION25POST.REF.Sales Returns and AllowancesSales Tax PayableAccounts Rec./Linda CarterAccepted a return of defectivemerchandise,Credit Memorandum 102;original sale made on SalesSlip 1106 of January 21.451231111/ DEBITCREDIT450.0036.00486.00111 indicates that the amount wasposted to the Accounts Receivableaccount in the general ledger. Thecheck mark indicates that the amountwas posted to the customer’saccount.Linda Carter1819 Belt Line Road, Dallas, TX 75267-6318DESCRIPTION1 Balance21 Sales Slip 110625 CM 102POST.REF. 4.00

The Style ShopIncome Statement (Partial)Month Ended January 31, 20-RevenueSalesLess Sales Returns and Allowances 25,700.00600.00Net Sales 25,100.007-31

Objective 6 Prepare a schedule of accountsreceivableThe use of an accounts receivable ledger does noteliminate the need for the Accounts Receivableaccount in the general ledger.However, the Accounts Receivable account (inthe General Ledger) is now considered a controlaccount.7-32

At the end of each month, after all thepostings have been made, the balances inthe accounts receivable ledger must beproved against the balance of theAccounts Receivable general ledgeraccount.TOTAL OF INDIVIDUALCUSTOMER BALANCES 7-33ACCOUNTS RECEIVABLEBALANCE

The Style ShopSchedule of Accounts ReceivableJanuary 31, 20-Roy AndersonCathy BallA comparisonof the total of theLinda Carterscheduleof accountsreceivable andBarbaraCoeMesia Davisthe balanceof the Accounts ReceivableKim Ramirezaccount shows that the two figures areAmalia Rodriguezthe same.Alma SanchezFred 0464.00TotalACCOUNTDATE20 -Jan.6345.00Accounts ReceivableDESCRIPTION1 Balance23253131POST.REF. J1J1S1CR1Account ANCEDEBITCREDIT3240.003078.002592.008478.506345.00

Chapter7Accounting for Salesand Accounts ReceivableSection 3: Special Topics inMerchandisingSection Objectives7. Compute trade discounts.8. Record credit card sales in appropriatejournals.9. Prepare the state sales tax return.McGraw-Hill 2009 The McGraw-Hill Companies, Inc. All rights reserved.

Objective 7Computing Trade DiscountsThe basic procedures used by wholesalers tohandle sales and accounts receivable are thesame as those used by retailers.However, many wholesalers offer Cash discounts Trade discounts7-36

Single Trade DiscountSuppose the list price of goods is 1,500 and the tradediscount is 40 percent.QUESTION:What is the net price?List price – trade discountANSWER: 1,500– 600 9007-37

Series of Trade DiscountsSuppose the list price is 1,500 and the trade discountis quoted as a series of 25 and 15 percent.QUESTION:What is the net price ?List price- first discount- second discountANSWER: 1,500.00- 375.00- 168.75 956.257-38

Sales taxes apply only to retail transactions. Awholesale business does not need to account forsales taxes.SALES JOURNALDATE INVOICECUSTOMER’SPOST.NO.ACCOUNT DEBITED REF.20-Jan. 3 7099Gabbert’s Hardware Company 31 7100131Neal’s Department StoreTotal PAGEACCOUNTSRECEIVABLE DR.SALES CR.18,600.004,200.0040,875.00(111/401)The sales journal has a single amount column.7-391

Advantages of Credit SalesThe volume of both sales and profits will increaseif buyers are given a period of a month or more topay for the goods or services they purchase.Disadvantages of Credit Sales Sales on credit will lead to increases in profit onlyif each customer completes the transaction bypaying for the goods or services purchased. If payment is not received, the expected profitsbecome actual losses and the purpose forgranting the credit is defeated. Therefore businesses need to closely analyze acustomer’s ability to pay before granting credit.7-40

Types of Credit Sales Open-account credit Business credit cards Bank credit cards Cards issued by credit card companies7-41

Objective 8Record credit card sales inappropriate journalsMethod 1: No Separate General Ledger Accounts Businesses that have few transactions with creditcard companies normally debit the amounts of suchsales to the usual Accounts Receivable account inthe general ledger and credit them to the same Salesaccount that is used for cash sales and other types ofcredit sales. Payment from a credit card company is recorded inthe cash receipts journal.7-42

Method 2: Separate General Ledger AccountsFirms that do a large volume of business withcredit card companies might use separate generalledger accounts: Sales–Credit Card Companies AccountsReceivable–Credit Card Companies7-43

Objective 9Prepare the state sales tax returnAt the end of each month, after the accounts have allbeen posted, The Style Shop prepares the sales taxreturn.Three accounts are involved: Sales Tax Payable Sales Sales Returns and Allowances7-44

Sales Tax ComputationTaxable Gross Sales for January 27,350.008% Sales Tax RatexSales Tax Due0.08 2,188.0027,350.0027,350.0027,350.008%2,188.007-45

Thank Youfor usingCollege Accounting, 12th EditionPrice Haddock Farina7-46

Four credit sales made on January 3, 8, 11, and 15 . In a retail business such as The Style Shop, the data needed for each entry is taken from a copy of the customer’s sales slip. Objective 1 Record credit sales in a sales journal. 7

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