ACCOUNTING FOR SALESACCOUNTING FOR SALES

UnitUnit

55

Revenues are reported when earned in accordance with the revenue recognition principle. In a merchandising company. revenues are earned when the goods are transferred from seller to buyer.

SALES TRANSACTIONSSALES TRANSACTIONSSALES TRANSACTIONSSALES TRANSACTIONS

SALES TRANSACTIONSSALES TRANSACTIONSSALES TRANSACTIONSSALES TRANSACTIONS

J1Date Account Title and Explanation Ref Debit CreditMay 4 Accounts Receivable 3,800

Sales 3,800 To record credit sale.

May 4 Cost of Goods Sold 2,400 Merchandise Inventory 2,400

To record cost of merchandise sold.

General Journal

1. The first entry records the sale of goods to a customer at the retail (selling) price.

2. The second entry releases the goods from inventory at cost and charges the goods to cost of goods sold.

1. The first entry records the sale of goods to a customer at the retail (selling) price.

2. The second entry releases the goods from inventory at cost and charges the goods to cost of goods sold.

SALES TAXESSALES TAXESSALES TAXESSALES TAXES

• Sales tax is expressed as a percentage of the sales price on selected goods sold to customers by a retailer. They are collected on most revenues, and paid on many costs.

• Sales taxes may include the federal goods and services tax (GST) and the provincial sales tax (PST), if any. These two taxes have been combined into one harmonized sales tax (HST) in some Atlantic Provinces.

SALES TAXES ON REVENUESSALES TAXES ON REVENUESSALES TAXES ON REVENUESSALES TAXES ON REVENUES

• The retailer collects the tax from the customer when the sale occurs, and periodically (usually monthly) remits the collections to the Receiver General.

• Sales taxes are not revenue but are a current liability until remitted.

Sales Returns occur when customers are dissatisfied with merchandise and are allowed to return the goods to the seller for credit or a refund.

Sales Allowances occur when customers are dissatisfied, and the seller allows a deduction from the selling price.

SALES RETURNS AND SALES RETURNS AND ALLOWANCESALLOWANCES

SALES RETURNS AND SALES RETURNS AND ALLOWANCESALLOWANCES

The normal balance of Sales Returns and Allowances is a debit.

Sales Returns and Allowances is a contra revenue account to the Sales account.

SALES RETURNS AND SALES RETURNS AND ALLOWANCESALLOWANCES

SALES RETURNS AND SALES RETURNS AND ALLOWANCESALLOWANCES

RECORDING SALES RETURNS RECORDING SALES RETURNS AND ALLOWANCESAND ALLOWANCES

RECORDING SALES RETURNS RECORDING SALES RETURNS AND ALLOWANCESAND ALLOWANCES

1. The first entry reduces the balance owed by the customer and records the goods returned at retail price.

2. The second entry records the physical return of goods to inventory at cost and removes the goods from the cost of goods sold account.

1. The first entry reduces the balance owed by the customer and records the goods returned at retail price.

2. The second entry records the physical return of goods to inventory at cost and removes the goods from the cost of goods sold account.

J1Date Account Title and Explanation Ref Debit CreditMay 8 Sales Returns and Allowances 300

Accounts Receivable 300 To record returned goods.

May 8 Merchandise Inventory 140 Cost of Goods Sold 140

To record cost of goods returned.

General Journal

• A quantity discount is the offer of a cash discount to a customer in return for a volume sale.

• Quantity discounts result in a sales price reduction. They are not separately journalized. Instead the sale is recorded at the reduced price.

QUANTITY DISCOUNTSQUANTITY DISCOUNTSQUANTITY DISCOUNTSQUANTITY DISCOUNTS

A sales discount is the offer of a cash discount to a customer in exchange for the prompt payment of a balance due.

Similar to Sales Returns and Allowances, Sales Discounts is also a contra revenue account with a normal debit balance.

SALES DISCOUNTSSALES DISCOUNTSSALES DISCOUNTSSALES DISCOUNTS

DAYS SALES IN INVENTORYDAYS SALES IN INVENTORY

Days sales in inventory =

365 days

Inventory turnover