Accounting for Sales and Cash Receipts Making Accounting Relevant Sales of products or services generate revenue for a business. Making Accounting Relevant

Accounting for Sales and Cash ReceiptsAccounting for Sales and Cash Receipts

Making Accounting Relevant

Sales of products or services generate

revenue for a business.

Making Accounting Relevant

Sales of products or services generate

revenue for a business.

If you work at a retail business, what sales transaction have you participated in? Discuss the actions involved in the sale.

If you work at a retail business, what sales transaction have you participated in? Discuss the actions involved in the sale.

Section 1Accounting for a Merchandising Business

Section 1Accounting for a Merchandising BusinessWhat You’ll Learn

The purpose of a merchandising business.

The difference between a retailer and a wholesaler.

Uses of the Merchandise Inventory account, and its rules of debit and credit.

Uses of the Sales account, and its rules of debit and credit.

What You’ll Learn The purpose of a merchandising

business.

The difference between a retailer and a wholesaler.

Uses of the Merchandise Inventory account, and its rules of debit and credit.

Uses of the Sales account, and its rules of debit and credit.

Why It’s Important

As consumers, we buy goods from

merchandising businesses daily. You

need to understand the nature of these

transactions to maintain accounting

records for a merchandising business.


As consumers, we buy goods from

merchandising businesses daily. You

need to understand the nature of these

transactions to maintain accounting

records for a merchandising business.

Section 1 Accounting for a Merchandising Business (con’t.)


Key Terms

retailer

wholesaler

merchandise

Key Terms

retailer

wholesaler

merchandise

inventory

sales

inventory

sales

The Operating Cycle of a Merchandising BusinessThe Operating Cycle of a Merchandising Business



Merchandise Inventory AccountMerchandise Inventory AccountGoods bought for resale are called

merchandise. The items of merchandise the business has in stock are referred to as inventory. The inventory is represented in the general ledger by the asset account Merchandise Inventory.

Goods bought for resale are called merchandise. The items of merchandise the business has in stock are referred to as inventory. The inventory is represented in the general ledger by the asset account Merchandise Inventory.



Merchandise Inventory

Credit–

Decrease Side

Debit+

Increase SideNormal Balance

Sales AccountSales Account

When a retail merchandising

business sells goods to a customer,

the amount of the merchandise sold is

recorded in the Sales account.

When a retail merchandising

business sells goods to a customer,

the amount of the merchandise sold is

recorded in the Sales account.



Sales

Debit–

Decrease Side

Credit+


Check Your UnderstandingCheck Your Understanding

What type of account is

Merchandise Inventory?

What type of account is

Merchandise Inventory?



Section 2Analyzing Sales Transactions

Section 2Analyzing Sales TransactionsWhat You’ll Learn

How to record the sale of merchandise on account.

How to use the accounts receivable subsidiary ledger.

How to post to the accounts receivable subsidiary ledger.

The use of the Sales Tax Payable account, and its rules of debit and credit.

The use of the Sales Returns and Allowances account, and its rules of debit and credit.

What You’ll Learn How to record the sale of merchandise

on account. How to use the accounts receivable

subsidiary ledger. How to post to the accounts receivable

subsidiary ledger. The use of the Sales Tax Payable

account, and its rules of debit and credit. The use of the Sales Returns and

Allowances account, and its rules of debit and credit.

Why It’s ImportantIt is essential to record sales

transactions correctly as they reflect the revenue of the business.

Why It’s ImportantIt is essential to record sales

transactions correctly as they reflect the revenue of the business.

Section 2 Analyzing Sales Transactions (con’t.)Section 2 Analyzing Sales Transactions (con’t.)

Key Terms sale on account charge customer credit cards sales slip sales tax credit terms accounts receivable subsidiary ledger

Key Terms sale on account charge customer credit cards sales slip sales tax credit terms accounts receivable subsidiary ledger

subsidiary ledger controlling account sales return sales allowance credit memorandum contra account

subsidiary ledger controlling account sales return sales allowance credit memorandum contra account

The Sales SlipA sales slip lists the details of a sale:

The Sales SlipA sales slip lists the details of a sale:

The date of the sale.

The name of the customer.

The description, quantity, and price of the item(s) sold.

The date of the sale.

The name of the customer.

The description, quantity, and price of the item(s) sold.


Sales TaxSales TaxMost states and some cities tax the

retail sale of goods and services. This tax is called a sales tax. The sales tax rate is usually stated as a percentage of the sale, such as 5%. The business keeps a record of the sales tax owed to the state in a liability account called Sales Tax Payable.

Most states and some cities tax the retail sale of goods and services. This tax is called a sales tax. The sales tax rate is usually stated as a percentage of the sale, such as 5%. The business keeps a record of the sales tax owed to the state in a liability account called Sales Tax Payable.

Sales Tax Payable

Debit–

Decrease Side

Credit+



Credit TermsCredit Terms

Credit terms state the time allowed for

payment.

The credit terms for the sale to Casey

Klein are n/30.

The “n” stands for the net, or total,

amount of the sale.

The “30” stands for the number of

days the customer has to pay for the

merchandise.

Credit terms state the time allowed for

payment.

The credit terms for the sale to Casey

Klein are n/30.

The “n” stands for the net, or total,

amount of the sale.

The “30” stands for the number of

days the customer has to pay for the

merchandise.


The Accounts Receivable LedgerThe Accounts Receivable LedgerThe accounts receivable subsidiary

ledger contains an account for each charge customer.

The accounts receivable subsidiary ledger contains an account for each charge customer.


General Ledger

Accounts Receivable—controlling account $10,000

Accounts Receivable Subsidiary Ledger

Individual Accounts Within Ledger:

Brown, Joshua $2,000

Clark, Gillian 3,000

Greene, Jason 1,000

Perez, Sarita 4,000

Total $10,000

General Ledger

Accounts Receivable—controlling account $10,000

Accounts Receivable Subsidiary Ledger

Individual Accounts Within Ledger:

Brown, Joshua $2,000

Clark, Gillian 3,000

Greene, Jason 1,000

Perez, Sarita 4,000

Total $10,000

Controlling account balance equals total of accounts in subsidiary ledger.

Controlling account balance equals total of accounts in subsidiary ledger.

The Accounts Receivable Subsidiary Ledger FormThe Accounts Receivable Subsidiary Ledger Form

The subsidiary ledger account form

has lines at the top for the name and

address of the customer.

The subsidiary ledger account form

has lines at the top for the name and

address of the customer.


Business Transaction

ANALYSIS Identify 1. The accounts affected are Accounts Receivable (controlling), Accounts Receivable—Casey Klein (subsidiary), Sales, and Sales Tax Payable.


Recording Sales on AccountRecording Sales on Account

On December 1 On Your Mark sold merchandise on account to Casey Klein for $200 plus sales tax of $12, Sales Slip 50.

Business Transaction (con’t.)

ANALYSIS Classify 2.Accounts Receivable (controlling) and Accounts Receivable—Casey Klein (subsidiary) are asset accounts. Sales is a revenue account. Sales Tax Payable is a liability account.


Recording Sales on Account (con’t.)Recording Sales on Account (con’t.)



ANALYSIS + / – 3.Accounts Receivable (controlling) and Accounts Receivable—Casey Klein (subsidiary) are increased by the total amount, $212 (dollar amount of merchandise sold plus sales tax). Sales is increased by the dollar amount of merchandise sold, $200. Sales Tax Payable is increased by the amount of sales tax charged, $12.








DEBIT-CREDIT RULE 4.Increases to asset accounts are recorded as debits. Debit Accounts Receivable (controlling) for $212. Also debit Accounts Receivable—Casey Klein (subsidiary) for $212.

5.Increases to revenue and liability accounts are recorded as credits. Credit Sales for $200 and Sales Tax Payable for $12.

T ACCOUNTS 6.Accounts Receivable Sales





Debit+

212

Credit+

200

Credit–

Debit–

Accounts ReceivableSubsidiary Ledger Sales Tax

Casey Klein Payable

Debit+

212

Credit–

Debit–

Credit+

200





JOURNAL ENTRY 7.

Sales Returns and AllowancesSales Returns and Allowances

Any merchandise returned for

credit or a cash refund is called a

sales return.

A price reduction granted for

damaged goods kept by the

customer is called a sales

allowance.

Any merchandise returned for

credit or a cash refund is called a

sales return.

A price reduction granted for

damaged goods kept by the

customer is called a sales

allowance.


Sales Returns and Allowances (con’t.)Sales Returns and Allowances (con’t.)

A credit memorandum lists the details of a sales return or allowance.

A credit memorandum lists the details of a sales return or allowance.


The Sales Returns and Allowances AccountThe Sales Returns and Allowances Account decreases the total revenue earned

by a business; summarizes the total returns and

allowances for damaged, defective, or other otherwise unsatisfactory merchandise;

is a contra account.

decreases the total revenue earned by a business;

summarizes the total returns and allowances for damaged, defective, or other otherwise unsatisfactory merchandise;

is a contra account.

Sales Returns and Allowances

Debit+


Credit–

Decrease Side




On December 4 OnYour Mark issued Credit Memorandum 124 to Gabriel Ramos for the return of merchandise purchased on account, $150 plus $9 sales tax.

JOURNAL ENTRY 7.

The Sales Returns and Allowances AccountThe Sales Returns and Allowances Account


Businesses collect sales tax

from customers. In what account is

the sales tax recorded?

Businesses collect sales tax

from customers. In what account is

the sales tax recorded?


Section 3Analyzing Cash Receipt Transactions

Section 3Analyzing Cash Receipt TransactionsWhat You’ll Learn

How to record cash receipt

transactions.

The use of the Sales Discounts

account, and its rules of debit and

credit.

What You’ll Learn

How to record cash receipt

transactions.

The use of the Sales Discounts

account, and its rules of debit and

credit.


It is essential to understand the

various ways that businesses receive

cash and how to record the receipt of

cash.


It is essential to understand the

various ways that businesses receive

cash and how to record the receipt of

cash.

Key Terms cash receipt

cash sale

bankcard

Key Terms cash receipt

cash sale

bankcard

Section 3 Analyzing Cash Receipt Transactions (con’t.)


cash discount

sales discount

cash discount

sales discount

Kinds of Cash ReceiptsKinds of Cash Receipts

payments from charge customers

cash sales

bankcard sales

payments from charge customers

cash sales

bankcard sales



Cash SalesCash Sales

The business

receives full

payment for

merchandise sold

at the time of the

sale.

Most retailers use

a cash register to

record cash sales.

The business

receives full

payment for

merchandise sold

at the time of the

sale.

Most retailers use

a cash register to

record cash sales.



Cash Sales

Sales Tax

Cash from Charge CustomersCash from Charge Customers

Businesses record cash received

on account from charge customers

by preparing receipts.

Receipts are pre-numbered and

may be prepared in multiple

copies.

The receipt is a source document

for the journal entry.

Businesses record cash received

on account from charge customers

by preparing receipts.

Receipts are pre-numbered and

may be prepared in multiple

copies.

The receipt is a source document

for the journal entry.



Bankcard SalesBankcard Sales

A bankcard is

issued by a bank

and honored by

many businesses.

Bankcard sales

are recorded as

though they are

cash sales.

A bankcard is

issued by a bank

and honored by

many businesses.

Bankcard sales

are recorded as

though they are

cash sales.



Bankcard Sales

Sales Tax

Cash DiscountsCash Discounts

A cash discount, or sales discount, is

the amount a customer can deduct

from the amount owed for purchased

merchandise if payment is made

within a certain time.

Terms 2/10, n/30 means that the

customer can deduct 2% of the cost

of merchandise if payment is made

within 10 days of the sale date.

A cash discount, or sales discount, is

the amount a customer can deduct

from the amount owed for purchased

merchandise if payment is made

within a certain time.

Terms 2/10, n/30 means that the

customer can deduct 2% of the cost

of merchandise if payment is made

within 10 days of the sale date.



Cash Discount TransactionsCash Discount Transactions

On December 3 On Your Mark sold

$1,500 worth of merchandise on account

to South Branch High School Athletics.

If South Branch pays within 10 days

(by December 13), On Your Mark will

receive $1,470, or the original price less

the cash discount of $30.

On December 3 On Your Mark sold

$1,500 worth of merchandise on account

to South Branch High School Athletics.

If South Branch pays within 10 days

(by December 13), On Your Mark will

receive $1,470, or the original price less

the cash discount of $30.



Cash Discount Transactions (con’t.)Cash Discount Transactions (con’t.)

1. Merchandise DiscountSold X Rate = Discount

1. Merchandise DiscountSold X Rate = Discount



2. Amount PaidWithin

Sales Slip Discount DiscountAmount – Amount = Period

2. Amount PaidWithin

Sales Slip Discount DiscountAmount – Amount = Period

$1,500 X .02 = $30$1,500 X .02 = $30

$1,500 – $30 = $1,470$1,500 – $30 = $1,470


ANALYSIS Identify 1. The accounts affected are Cash in Bank, Accounts Receivable (controlling), Accounts Receivable—Casey Klein (subsidiary).

On December 5 On Your Mark received $212 from Casey Klein to apply to her account, Receipt 301.

Recording Cash Received from Charge CustomersRecording Cash Received from Charge Customers




ANALYSIS Classify 2. Cash in Bank, Accounts Receivable (controlling) and Accounts Receivable—Casey Klein (subsidiary) are asset accounts.



Recording Cash Received from Charge Customers (con’t.)




ANALYSIS + / – 3. Cash in Bank is increased by $212. Accounts Receivable (controlling) and Accounts Receivable—Casey Klein (subsidiary) are decreased by $212.







DEBIT-CREDIT RULE 4.Increases to asset accounts are recorded as debits. Debit Cash in Bank for $212.

5.Decreases to asset accounts are recorded as credits. Credit Accounts Receivable (controlling) for $212. Also credit Accounts Receivable—Casey Klein (subsidiary) for $212.






T ACCOUNTS 6.Cash in AccountsBank Receivable


Debit+

212

Credit–

212

Credit–

Accounts ReceivableSubsidiary Ledger

Casey Klein

Debit+

Credit–

212



Recording Cash Received from Charge Customers (con’t.)Recording Cash Received from Charge Customers (con’t.)


Debit+


JOURNAL ENTRY 7.







Explain the benefits of a cash

discount.

Explain the benefits of a cash

discount.



Documents

Accounting for Sales and Cash Receipts Making Accounting Relevant Sales of products or services generate revenue for a business. Making Accounting Relevant