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PURCHASES, SALES AND THEIR RELATED ACCOUNTSWe know that all
merchandising business will purchase merchandise to sell, and in
order for
them to make money they have to be able to sell it. In order for
a merchandising company
to keep track of their purchases and sales, they must record it
in their prospective accounts.
Every company will have two accounts called sales and purchases.
Within those accounts areaccounts called contra accounts. Contra
Accounts are accounts that reduce the relatedvalue of an account on
a financial statement. The chart below shows the main accounts
and
the contra accounts related with them.
When merchandise is sold, the revenue account for a
merchandising business is called sales.The contra accounts for
sales, will take away from the total value of the sales. Sales
discountsoccur when a business owner provides a discount to the
buyer and will take away from the
total sale of the goods. Sales returns and allowances is an
account that will accumulate theamount of returns and amounts that
you paid back to customers.
The amount of yourRevenue Sales Discounts and Sales Returns and
Allowances = Net SalesT Accounts for Sales
Sales Sales Discounts Sales Returns AllowancesDecrease
Normal
BalanceNormalBalance
Decrease NormalBalance
Decrease
Purchases Purchase Discounts Purchase Returns andAllowances
Sales Sales Discounts Sales Returns andAllowances
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Sales Tax PayableLaws of most provinces require that a tax be
collected from customers for each sale made. A
tax on a sale of merchandise or services is called a sales tax.
Sales taxes are usually charged as apercentage of the selling
price. To calculate sales tax payable use the following
formula:
Price of Goods X Sales Tax Rate = Sales TaxT- Accounts for Sales
Tax Payable
Sales Tax PayableDecrease Normal Balance
Increase
General Journal Entries for Sales:Cash Sale and Credit Card
SalesJan 15 Sold $15 000.00 + tax at 5% worth of Merchandise for
Cash. T15
GENERAL JOURNAL PAGE 11 2
DOC. POST. GENERAL
DATE ACCOUNT TITLE NO. REF. DEBIT CREDIT
1 Jan 15 Cash 15 750.00 1
2 Sales 15 000.00 2
3 Sales Tax Payable 750.00 3
4 Till Tape 15 4
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Sale on AccountJan 15 Sold $15 000.00 + tax at 5% worth of
Merchandise to J. LeBlanc on account. SI15
GENERAL JOURNAL PAGE 11 2
DOC. POST. GENERAL
DATE ACCOUNT TITLE NO. REF. DEBIT CREDIT
1 Jan 15 A/R Josh LeBlanc 15 750.00 1
2 Sales 15 000.00 2
3 Sales Tax Payable 750.00 3
4 Sales Invoice 15 4
On the other side of the chart is Purchases. The contra purchase
accounts are PurchaseDiscounts and Purchase Returns and Allowances.
Purchase discounts keep track of all of thediscounts you obtained
while purchasing your merchandise. Purchases returns andallowances
will then keep track of all the amounts and returns that you made
throughout thefiscal period.
YourPurchases Purchase Discounts and Purchase Returns and
Allowances = Net Purchases.T- Accounts for Purchases
Purchases Purchase Discounts Purchase
ReturnsAllowancesNormalBalance
Decrease Decrease NormalBalance
Decrease NormalBalance
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General Journal Entries for Purchases:Purchases using CashJan 15
Bought $15 000.00 worth of Merchandise for Cash. C15
GENERAL JOURNAL PAGE 11 2
DOC. POST. GENERAL
DATE ACCOUNT TITLE NO. REF. DEBIT CREDIT
1 Jan 15 Purchases 15 000.00 1
2 Cash 15 000.00 2
4 Cheque # 5 4
Sale on AccountJan 15 Bought $15 000.00 worth of Merchandise on
account. PI15
GENERAL JOURNAL PAGE 11 2
DOC. POST. GENERAL
DATE ACCOUNT TITLE NO. REF. DEBIT CREDIT
1 Jan 15 Purchases 15 700.00 1
2 A/P LeBlanc Co. 15 000.00 2
4 Purchase Invoice 15 4
Assignment: Use the following General Journal Pages to complete
the followingassignments. Once you have journalized all of the
transactions, go through and make sure
that our DR=CR and rule your totals properly.Century 21 (OLD)
Page 254 3-1Century 21 Page 268 14-1
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