ACCOUNTING FOR CASH RECEIPTS AND PAYMENTS CHAPTER TEN ACCOUNTING FOR CASH RECEIPTS AND PAYMENTS

In the last chapter we looked at sales and purchases on account. Now, its time to record cash receipts and cash payments for those transactions. I bet we’re going to see lots of journal entries …What do you think, Poopsie?

GENERAL JOURNAL Cash 1,596 00 Accts. Rec./E. Lorenzo 1,596 00 DATE DESCRIPTION PR DEBIT CREDIT 1 April 14 Cash 1,596 00 2 Accts. Rec./E. Lorenzo 1,596 00 3 (Received cash on account) 4 Here is the entry to record The receipt of cash from One of our customers. 5 6 7 8 Now, let’s look at how to post this transaction to the General ledger and our subsidiary Accounts Receivable ledger. 9 10 11

GENERAL JOURNAL Cash 101 1,596 00 Accts. Rec./E. Lorenzo 1,596 00 DATE DESCRIPTION PR DEBIT CREDIT April 14 Cash 101 1,596 00 1 2 Accts. Rec./E. Lorenzo 1,596 00 3 (Received cash on account) 4 5 Cash is posted as usual. 6 7 8 9 10 11

GENERAL JOURNAL Cash 101 1,596 00 Accts. Rec./E. Lorenzo 1,596 00 DATE DESCRIPTION PR DEBIT CREDIT April 14 Cash 101 1,596 00 1 2 Accts. Rec./E. Lorenzo 122 / 1,596 00 3 Received cash on account 4 5 The credit is posted to the Accounts Receivable controlling account and to the Subsidiary ledger account for E. Lorenzo. 6 7 8 9 10 11

Credit Terms Now, let’s review what a credit period is and how to account for cash discounts available to purchasers and sellers.

Cash Discounts Available if the bill is paid within the discount period Seller calls it a Sales Discount. Buyer calls it a Purchase Discount. In this chapter, we will look at both the BUYER as well as the SELLER’s journal entries to record discounts

Sales Discounts Another CONTRA-REVENUE account used to record discounts given to customers who buy merchandise on account and pay their bill early. SALES DISCOUNTS DR. CR. + The account is debited for the amount of the Cash Discount at the time of payment.

CREDIT TERMS 2/10, n/30 2% discount off sales price

CREDIT TERMS 2/10, n/30 If paid within 10 days

CREDIT TERMS 2/10, n/30 Or the total amount is due

CREDIT TERMS 2/10, n/30 In 30 days

CREDIT TERMS 1/10, n/45 Let’s try another . . . Okie Dokie! Let me get this straight!. . .If I pay my bill within 10 days, I will get a 1% discount. Otherwise, the total amount is due in 45 days. Right??!!

Yee Haw! I’m on a roll. Give me another one! CREDIT TERMS 2/eom, n/60 Yee Haw! I’m on a roll. Give me another one! Eww. . That thar is a tough one. Humm. . I’ll give it a try. . .I will get 2% off if paid before the end of the month?! Otherwise, the total amount is due in 60 days. Am I right?? Huh huh???

GENERAL JOURNAL DATE DESCRIPTION DEBIT PR CREDIT 1 2 3 Example: A talking bike was sold for $100 with credit terms of 2/10, n/30, and cash is received within the discount period. 4 5 6 7 8 Yep. It really talks! 9 10 11

GENERAL JOURNAL Cash 98 00 Sales Discounts 2 00 DATE DESCRIPTION DEBIT PR CREDIT Cash 98 00 1 2 Sales Discounts 2 00 3 4 5 When payment is received with the discount period of 10 days, the customer takes a 2% discount $100 sale x 2% = $2 6 7 8 9 10 11

GENERAL JOURNAL Cash 98 00 Sales Discounts 2 00 100 00 DATE DESCRIPTION DEBIT PR CREDIT Cash 98 00 1 2 Sales Discounts 2 00 3 Accts. Receivable/Cust. 100 00 4 (Received cash on account) 5 Accounts Receivable is credited for the full amount owed because the customer is paying his bill, for the bike, in FULL! 6 7 8 9 10 11

Reminder- The Sales Discounts Account is Another CONTRA-REVENUE account used to record discounts given to customers who buy merchandise on account and pay their bill early. SALES DISCOUNTS DR. CR. + The account is debited for the amount of the Cash Discount at the time of payment.

Okay- Here is a tough one…Wanna try, little man? Man, why are you a farmer? You should have been an accountant! Good job! Okay- Here is a tough one…Wanna try, little man? Example: On 1/1, Suzie Cue, purchased $400 of M&Ms + 5% sales tax of $20. She was given credit terms of 2/10,n/30. She later returned ¼ of the candy because she went on a diet. She paid the balance due within the discount period. How much did Suzie Cue pay? Bring it on!! She originally owed $420. She returned ¼ of it ($420 x ¼= $105) so now she owes $315. She can ONLY take a discount on the sale portion NOT the sales tax! Discount = $300 x 2%= $6 She would pay $420-$105- $6 disc= $309 This would be a great quiz question…

Income Statement Sales Returns & Allowances and Sales Discounts $257,180 Less: Sales returns and allowances $940 Sales discounts 1,980 - 2,920 $254,260 People returned stuff in the last chapter and now, I’m giving them discounts, how am I supposed to make any money!@% Sales Returns & Allowances and Sales Discounts are deducted from Sales in the Revenue section of the Income Statement.

Now, let’s look at Purchases Discounts that we take on the merchandise we bought. CONTRA-PURCHASES account used to record cash discounts allowed on purchases. PURCHASES DISCOUNTS I love getting discounts on the candy I buy for my store! DR. CR. + The account is credited for the discount granted by the vendor for prompt payment.

and payment is made within GENERAL JOURNAL DATE DESCRIPTION DEBIT PR CREDIT 1 2 3 4 Example: We purchased $100 of pink toilet paper on account with credit terms 2/10, n/30 and payment is made within the discount period. 5 6 7 8 9 10 11

And Accounts Payable is credited for the entire amount GENERAL JOURNAL DATE DESCRIPTION DEBIT PR CREDIT Purchases 100 00 1 2 Accounts Payable/ Vendor 100 00 3 (Purchased toilet paper ) 4 5 Purchases is debited And Accounts Payable is credited for the entire amount of the purchase. (Because we don’t know if we will pay within the discount period when we first make the purchase.) 6 7 8 9 10 11

GENERAL JOURNAL DATE DESCRIPTION DEBIT PR CREDIT Accounts Payable/Vendor 100 00 1 2 Cash 98 00 3 4 5 If payment is made within 10 days, then Cash is credited for the actual amount paid, $98. ($100 - $2 discount) 6 7 8 9 10 11

Purchase Discounts is credited for the discount amount, $2 GENERAL JOURNAL DATE DESCRIPTION DEBIT PR CREDIT Accounts Payable/Vendor 100 00 1 2 Cash 98 00 3 Purchases Discounts 2 00 4 (Paid for toilet paper w/2% disc) 5 6 Purchase Discounts is credited for the discount amount, $2 ($100 x 2%). 7 8 9 10 11

GENERAL JOURNAL Cash payment transactions DATE DESCRIPTION PR DEBIT CREDIT 1 April 10 Accts. Payable/B.B. Small 4,800 00 2 Cash 4,800 00 3 (Made payment on account) 4 5 Cash payment transactions are posted in a similar manner as the cash receipt transactions. 6 7 8 9 Let’s take a look… 10 11

GENERAL JOURNAL The debit is posted to the DATE DESCRIPTION PR DEBIT CREDIT Accts. Payable/B.B. Small 4,800 00 1 April 10 202 / 2 Cash 4,800 00 3 (Made payment on account) 4 5 The debit is posted to the Accounts Payable controlling account and to the Subsidiary ledger account for B.B. Small. 6 7 8 9 10 11

GENERAL JOURNAL Cash is posted as usual. Accts. Payable/B.B. Small DATE DESCRIPTION PR DEBIT CREDIT April 10 Accts. Payable/B.B. Small 202 / 4,800 00 1 2 Cash 101 4,800 00 3 (Made payment on account) 4 5 Cash is posted as usual. 6 7 8 9 10 11

Schedule Of Accounts Payable (Similar to the Schedule of Accounts Receivable) Listing of suppliers and their balances Prepared to verify that the sum of the Accounts Payable Ledger balances equals the Accounts Payable balance in the General Ledger. Usually prepared at the end of the month

Northern Micro Schedule of Accounts Payable April 30, 20-- Chocolate Supply, Inc. $3,300 Datasoft 2,500 BB. Small. 800 Televax, Inc. 5,300 $11,900 This should be the balance in the Accounts Payable controlling account in the General Ledger.

Let’s look at an Income Statement for The Fat Mouse Candy Store Sales Sales Returns & Allowances These are all of our new accounts… Sales Discounts Purchases Purchases Returns & Allowances Purchases Discounts Freight-In I want to know the cost of the candy on my store shelves…

The Fat Mouse Candy Store Income Statement Sales $257,180 Less: Sales returns and allowances $940 Sales discounts 1,980 - 2,920 Net Sales $254,260 This is the final price we charged our customers for the merchandise. Lot’s of people like my sweets!

Sales $257,180 Less: Sales returns & allow. 940 Sales Discounts 1,980 2,920 Net Sales $254,260 Cost of Goods Sold: Merchandise Inv., Jan 1 $67,000 Purchases $87,840 Less:Purch. ret. & allow. 932 1,348 - 2,280 Purchases discounts Net purchases $85,560 Add freight-in +2,360 Delivered Cost of Purchases +87,920 $154,920 Goods Available for Sale So, I guess I have to wait until the next chapter to see my profit? Aw shucks! This is the cost of ALL the goods that were offered for sale during the entire period.