7-2
The three types of business operations are:The three types of business operations are:
A service business is a business that sells services.
A merchandising business is a business that sells goods purchased for resale.
A manufacturing business is a business that sells goods that it has produced.
7-3
Meet The Style ShopMeet The Style Shop
The Style Shop is a retail business that sells the latest fashion clothing. A retail business sells directly to individual customers.
The Style Shop must account for the purchases and sales of goods and for Merchandise inventory .
Merchandise inventory is the stock of goods a merchandising business keeps on hand to sell
7-4
Special Journals and Subsidiary Ledgers
Allow for efficient recording of financial data, the accounting systems of most businesses include special journals and subsidiary ledgers
A special journal is a journal used to record only one type of transaction.
A subsidiary ledger is a ledger dedicated to accounts of a single type.
7-5
Journal Flow Chart
Does the transaction involve cash?
YES
Was cash RECEIVED?
YES NO
Record thetransaction in
the CASHRECEIPTS
(CRs) Journal
Use the CRs and CDs Journals to preparethe monthly Bank Reconcilation
Record thetransaction in
the CASHDISBURSEMENTS
(CDs) Journal
NO
Was inventory PURCHASED?
YES NO
Record thepurchase in
the PURCHASES Journal (PJ)
Was it a credit SALE?
YES NO
Record theTransaction
in theSALES
Journal (SJ)
Record theTransaction
In theGENERALJournal (GJ)
7-6
Journals Used by Merchandising Businesses
Journals Used by Merchandising Businesses
Sales
Purchases
Cash receipts
Cash payments
General
To record sales of merchandise on credit
To record purchases of merchandise on credit
To record cash received from all sources
Type of Journal Purpose
To record all disbursements of cash
To record all transactions that are not recorded in another special journal and all adjusting and closing entries
7-7
Ledgers Used by Merchandising Businesses
Ledgers Used by Merchandising Businesses
General
Accounts receivable
Accounts payable
Assets, liabilities, owner’s equity, revenue, and expense accounts
Accounts for credit customers
Accounts for creditors
Type of Ledger Content
7-8
ASSETS101 Cash
105 Petty Cash Fund
109 Notes Receivable
111 Accounts Receivable
112 Allowance for Doubtful Accounts
116 Interest Receivable
121 Merchandise Inventory
126 Prepaid Insurance
127 Prepaid Interest
129 Supplies
131 Store Equipment
132 Accumulated Depreciation - Store Equip.
141 Office Equipment
142 Accumulated Depreciation - Office Equip.
LIABILITIES201 Notes Payable — Trade
202 Notes Payable — Bank
205 Accounts Payable
216 Interest Payable
221 Social Security Tax Payable
222 Medicare Tax Payable
223 Employee Income Tax Payable
225 Federal Unemployment Tax Payable
227 State Unemployment Tax Payable
229 Salaries Payable
231 Sales Tax Payable
OWNER’S EQUITY301 Mary Amos, Capital
302 Mary Amos, Drawing
399 Income Summary
REVENUE401 Sales
451 Sales Returns and Allowances
491 Interest Income
493 Miscellaneous Income
The Style Shop Chart of Accounts
COST OF GOODS SOLD501 Purchases
502 Freight In
503 Purchases Returns and Allowances
504 Purchases Discounts
EXPENSES611 Salaries Expense - Sales
612 Supplies Expense
614 Advertising Expense
617 Cash Short or Over
626 Depreciation Expense - Store Equipment
634 Rent Expense
637 Salaries Expense - Office
639 Insurance Expense
641 Payroll Taxes Expense
643 Utilities Expense
649 Telephone Expense
651 Uncollectible Accounts Expense
657 Bank Fees Expense
658 Delivery Expense
659 Depreciation Expense - Office Equipment
691 Interest Expense
693 Miscellaneous Expense
7-9
A sales journal is a special journal used to record sales of merchandise on credit.
Sales on account only!
The Sales Journal
Four credit sales made on January 3, 8, 11, and 15 require four separate entries in the general journal:
Four debits to Accounts Receivable Four credits to Sales Tax Payable Four credits to Sales Four descriptions
General Journal and General Ledger
7-11
56
700
756111
231
401
Accounts Receivable
Sales Tax Payable
Sales
Sold merchandise on credit to
Barbara Coe, Sales Slip 1103
11
24
300
324111
231
401
Accounts Receivable
Sales Tax Payable
Sales
Sold merchandise on credit to
Amalia Rodriguez, Sales Slip 1104
15
48
600
648111
231
401
Accounts Receivable
Sales Tax Payable
Sales
Sold merchandise on credit to
Cathy Ball, Sales Slip 1102
8
32
400
432111
231
401
Accounts Receivable
Sales Tax Payable
Sales
Sold merchandise on credit to
Roy Anderson, Sales Slip 1101
Jan. 3
CREDIT DEBITPOST. REF.
DESCRIPTIONDate
20--
GENERAL JOURNAL PAGE 2
The four credit sales require twelve postings to the general ledger: Four postings to Accounts Receivable Four postings to Sales Tax Payable Four postings to Sales
General Journal and General Ledger
YIKES!
A special journal intended only for credit sales provides a more efficient method of recording these transactions.
Recording Transactions in a Sales Journal
In a sales journal, only one line is needed to record all information for each transaction. This helps avoid repetition.
7-14
Sales Slip
The Style Shop
Roy Anderson
8913 South Hampton Road
Dallas, TX 75232
400
32
400
Total 432
S Harris
7-15
The Style Shop2007 Trendsetter Lane
Dallas, TX 75268
Roy Anderson
8913 South Hampton Road
Dallas, TX 75232
400
Sales Tax 32
400
Total 432
S Harris
SALES JOURNAL PAGE 1
SALES ACCOUNTS SALES TAX DATE SLIP CUSTOMER’S NAME POST. RECEIVABLE PAYABLE SALES NO. REF. DEBIT CREDIT CREDIT20--Jan. 3 1101 Roy Anderson 432 32 400
7-16
SALES JOURNAL PAGE 1
SALES ACCOUNTS SALES TAXDATE SLIP CUSTOMER’S NAME POST. RECEIVABLE PAYABLE SALES NO. REF. DEBIT CREDIT CREDIT20-- Jan. 3 1101 Roy Anderson 214 14 200 8 1102 Cathy Ball 535 35 500 11 1103 Barbara Coe 642 42 600 15 1104 Amalia Rodriguez 428 28 400 18 1105 Fred Wu 856 56 800 21 1106 Linda Carter 321 21 300
28 1107 Kim Ramirez 107 7 100 29 1108 Mesia Davis 1,070 70 1,000 31 1109 Alma Sanchez 963 63 900 31 1110 Roy Anderson 267 17 250 31 Totals 5,886 436 5,450
With a sales journal it is not necessary to post each credit sale individually to general ledger accounts.
Instead, summary postings are made at the end of the month after the amount columns of the sales journal are totaled.
Posting from a Sales Journal
Before any posting takes place, the equality of the debits and credits recorded in the sales journal is proved by comparing the column totals.
DR=CR
7-19
SALES JOURNAL PAGE 1
SALES ACCOUNTS SALES TAXDATE SLIP CUSTOMER’S NAME POST. RECEIVABLE PAYABLE SALES NO. REF. DEBIT CREDIT CREDIT20-- Jan. 3 1101 Roy Anderson 432 32 400 8 1102 Cathy Ball 648 48 648 11 1103 Barbara Coe 756 56 700 15 1104 Amalia Rodriguez 324 24 300 18 1105 Fred Wu 810 60 750 21 1106 Linda Carter 486 36 450 28 1107 Kim Ramirez 108 8 100 29 1108 Mesia Davis 1080 80 1000 31 1109 Alma Sanchez 972 72 900 31 1110 Roy Anderson 270 20 250
31 Totals 5,886 436 5,450 (111) (401)
ACCOUNT Sales ACCOUNT NO. 401
DATE DESCRIPTION POST. DEBIT CREDIT BALANCE REF. DEBIT CREDIT
20-- Jan. 31 S1 5,450 5,450
(231)
7-20
Advantages of a Sales JournalAdvantages of a Sales Journal
Saves time, effort, and recording space
Makes journalizing and posting more efficient
Requires only three summary postings to the general ledger at the end of each month
Allows division of work
Improves the audit trail
7-21
An accounts receivable ledger is a subsidiary ledger that contains credit customer accounts.
The Accounts Receivable Ledger
Makes it possible to verify that customers are paying their balances on time and that they are within their credit limits
Provides a convenient way to answer questions from customers regarding their current balances or about a possible billing error
7-22
The Accounts Receivable LedgerThe Accounts Receivable Ledger
NAME Roy Anderson
ADDRESS 8913 South Hampton, Dallas, Texas 75232-6002
DATE DESCRIPTION POST. DEBIT CREDIT BALANCE REF.
20 --
Jan. 1 Balance 432
The accounts receivable ledger has three money columns.
The BALANCE column is presumed to contain debit amounts.
3 Sales Slip 1101 S1 432 864
Each credit sale recorded in the sales journal is posted to the appropriate customer’s account in the accounts receivable ledger.
Postings to the accounts receivable ledger are usually made daily so that the customer accounts can be kept up to date at all times.
Posting a Credit Sale
7-24
SALES JOURNAL PAGE 1
SALES ACCOUNTS SALES TAXDATE SLIP CUSTOMER’S POST. RECEIVABLE PAYABLE SALES NO. ACCOUNT DEBITED REF. DEBIT CREDIT CREDIT20--
Jan. 3 1101 Roy Anderson 432 32 400
NAME Roy Anderson
ADDRESS 8913 South Hampton, Dallas, Texas 75232-6002
DATE DESCRIPTION POST. DEBIT CREDIT BALANCE REF. 20 --
Jan. 1 Balance 432 3 Sales Slip 1101 S1 432 864
A sale is entered in the accounting records when the goods are sold or the service is provided.
If something is wrong with the goods or service, the firm may
take a sales return, or
give a sales allowance.
7-26
A sales return is a firm’s acceptance of a return of goods from a customer.
Sales Returns and Allowances
A sales allowance is a reduction in the price originally charged to customers for goods or services.
7-27
When a return or allowance is related to a credit sale, the normal practice is to issue a credit memorandum.
Credit Memorandum
A credit memorandum is a note verifying that a customer’s account is being reduced by the amount of a sales return or sales allowance plus any tax that may have been involved.
7-28
Sales Returns and Allowances
Returns and
Allowances+
A debit to the Sales Returns and Allowances account is preferred to making a direct debit to Sales.
The Sales Returns and Allowances account is a contra revenue account.
7-29
Business Transaction Business Transaction On January 23 The Style Shop issued Credit Memorandum 101 for
a sales allowance to Fred Wu for merchandise purchased on account. The merchandise was damaged but still usable.
The Style Shop
NAME: Fred Wu
ADDRESS: 2007 Trendsetter Lane
Dallas, TX 75268
PHONE:
150
150
162
12
7-30
Sales Returns and Allowances
+150
Accounts ReceivableSales Tax Payable
-162
-12
Sales Allowance
- +
+
7-31
How does a sales allowance transaction affect the financial statements?
QUESTION:
Net income is decreased. Assets, liabilities, and equity are decreased.
ANSWER:
Each sales return or allowance must be posted from the journal to the:
General Ledger A/Rand
customer’s account in the subsidiary A/R ledger.
Posting a Sales Return or Allowance
7-33
Date
20--
DESCRIPTION POST. REF.
DEBIT CREDIT
Jan. 25 Sales Returns and Allowances
Sales Tax Payable
Accounts Rec./Linda Carter
Accepted a return of defective
merchandise,
Credit Memorandum 102;
original sale made on Sales
Slip 1106 of January 21.
451
231
111/
450
36
486
NAME Linda Carter
ADDRESS 1819 Belt Line Road, Dallas, TX 75267-6318
DATE DESCRIPTION POST. DEBIT CREDIT BALANCE REF. 20 -- Jan. 1 Balance 54 21 Sales Slip 1106 S1 486 540 25 CM 102 J1 486 54
111 indicates that the amount was posted to the Accounts Receivable account in the general ledger. The check mark indicates that the amount was posted to the customer’s account.
Posting from the General Journal
7-34
Net sales is the difference between the balance in the Sales account and the
balance in the Sales Returns and Allowances
account and the Sales Discounts account.
Reporting Net Sales
7-35
Sales
Less Sales Returns and Allowances
Net Sales
The Style Shop calculation for net sales
Month Ended January 31, 20--
$25,700
<600>
$25,100
Note: there are no sales discounts
in this problem
The use of an accounts receivable ledger does not eliminate the need for the Accounts Receivable account in the general ledger.
However, the general ledger balance for A/R isnow considered a control account because it is the summary of all the subsidiary A/R accounts.
Schedule of Accounts Receivable
7-37
At the end of each month, after all the postings have been made, the balances in the accounts receivable ledger must be proved against the balance of the Accounts Receivable general ledger account.
TOTAL OF INDIVIDUAL CUSTOMER BALANCES
ACCOUNTS RECEIVABLE BALANCE=
The names of all customers with account balances are listed with the amount of their unpaid balances.
Schedule of Accounts Receivable
A schedule of accounts receivable is a listing of all balances of the accounts in the accounts receivable subsidiary ledger.
7-39
The Style Shop
Schedule of Accounts Receivable
January 31, 20--
Roy Anderson
Cathy Ball
Linda Carter
Barbara Coe
Mesia Davis
Kim Ramirez
Amalia Rodriguez
Alma Sanchez
Fred Wu
Total
702
648
54
1296
1021
216
972
972
464
6345
ACCOUNT Accounts Receivable Account No. 111
DATE DESCRIPTION POST. DEBIT CREDIT BALANCE REF. DEBIT CREDIT 20 -- Jan. 1 Balance 3240 23 J1 162 3078 25 J1 486 2592 31 S1 5886 8478 31 CR1 2133 6345
A comparison of the total of the schedule of accounts receivable and the balance of the Accounts Receivable account shows that the two figures are the same.
7-40
A wholesale business is a manufacturer or distributor of goods that sells to retail businesses or large consumers.
Credit Sales for a Wholesale Business
The basic procedures used by wholesalers to handle sales and accounts receivable are the same as those used by retailers except no sales tax and many wholesalers offer cash and trade discounts
7-41
A trade discount is a reduction from the list price.
Net Price
The list price is the established retail price.
The net price is the list price less all trade discounts.
7-43
The same goods may be offered to different customers at different trade discounts.
A single trade discount A series of trade discounts
Trade discounts can be offered as
7-44
Suppose the list price of goods is $1,500 and the trade discount is 40 percent.
List Price
$ 600
$1,500
x 40%List price x trade discount
Single Trade Discount
Discount
7-45
List price
$ 900
$1,500
< 600> trade discount
Single Trade Discount
Suppose the list price of goods is $1,500 and the trade discount is 40 percent.
Net Price
7-46
Suppose the list price is $1,500 and the trade discount is quoted as a series of 25 and 15 percent.
$1,500
<375>
first discount $1,500 x 25%=$375
Series of Trade Discounts
$1,125
<168.75>second discount $1,125 x 15%=$168.75
$956.25Net price
7-47
Special journals such as the sales journal can vary in format from company to company.
Using a Sales Journal for a Wholesale Business
No sales tax for a Wholesale Business
7-48
Sales taxes apply only to retail transactions. A wholesale business does not need to account for sales taxes.
The sales journal has a single amount column.
SALES JOURNAL PAGE 1
ACCOUNTS DATE INVOICE CUSTOMER’S POST. RECEIVABLE DR. NO. ACCOUNT DEBITED REF. SALES CR. 20-- Jan. 3 7099 Gabbert’s Hardware Company 18,600
31 71001 Neal’s Department Store 4,200 31 Total 40,875
(111/401)
7-49
SALES JOURNAL PAGE 1
ACCOUNTS DATE INVOICE CUSTOMER’S POST. RECEIVABLE DR. NO. ACCOUNT DEBITED REF. SALES CR. 20-- Jan. 3 7099 Gabbert’s Hardware Company 18,600 31 71001 Neal’s Department Store 4,200 31 Total 40,875
(111/401)
DATE DESCRIPTION POST. DEBIT CREDIT BALANCE REF. DEBIT CREDIT 20-- Jan. 1 Balance 46,700 31 S1 40,875 87,575
ACCOUNT Accounts Receivable ACCOUNT NO. 111
DATE DESCRIPTION POST. DEBIT CREDIT BALANCE REF. DEBIT CREDIT20-- Jan. 31 S1 40,875 40,875
ACCOUNT Sales ACCOUNT NO. 401
Posting from a Single-Column Journal
7-51
Sales on Credit
Each business must develop credit policies that achieve maximum sales with minimum losses:
A credit policy that is too tight results in a low level of losses at the expense of increases in sales volume.
A credit policy that is too lenient may result in increased sales volume accompanied by a high level of losses.
7-52
A Cost of Doing Business
Even though the credit investigation is thorough, some accounts receivable become uncollectible.
Unexpected business developments, errors of judgment, incorrect financial data, and many other causes may lead to defaults in payments by customers.
7-53
Different Types of Credit Sales
Open-account credit
Most commonly offered by small businesses granted on the basis of personal knowledge of the customer
Business credit cards
department store chains and gasoline companies, provide their own credit cards Cards issued by credit card companies
Top Related