INTRODUCTION TO ACCOUNTING Special Journals and the Receivable and Payable Subsidiary Ledgers

Sales on Account When the company makes a sale and the customer will not pay us until a later date, we must record the transaction in two places: Sales Journal (to record the transaction) Receivable Subsidiary Ledger (to track the customer’s balance)

Debit Accounts Receivable Sales Journal-Page 1 Date Customer Invoice # PR Credit Sales Debit Accounts Receivable Debit Cost-of-Sales Credit Inventory Let’s assume that on December 2nd we sold merchandise on credit to Ender Co. on invoice 7601 for $6,000. The cost of the products was $3,000. The entry in the Sales Journal would be as follows:

Debit Accounts Receivable Sales Journal-Page 1 Date Customer Invoice # PR Credit Sales Debit Accounts Receivable Debit Cost-of-Sales Credit Inventory Dec 2 Ender Co. 7601 6,000 3,000 After the transaction has been journalized, we must immediately update the Customer’s Ledger Card. The column with the heading “Debit Accounts Receivable” instructs us to find the Customer’s Ledger Card (Ender Co.) and Debit it for $6,000. Notice that there is nothing in the “PR” column. A checkmark in this column signifies that the Customer’s Ledger Card has been updated.

Customer’s Ledger Card Date Explanation (Invoice or Receipt #) PR Debit Credit Balance Dec 2 Invoice 7601 S1 6,000 The journal instructed us to Debit the Customer’s Ledger Card for $6,000. We must then update the customer’s balance. The “S1” in the “PR” column signifies that this transaction came from the Sales Journal Page 1. To complete the recording of this transaction we must return to the Sales Journal and put a checkmark in the “PR” column.

Debit Accounts Receivable Sales Journal-Page 1 Date Customer Invoice PR Credit Sales Debit Accounts Receivable Debit Cost-of-Sales Credit Inventory Dec 2 Ender Co. 7601 √ 6,000 3,000 The recording of this transaction is now complete.

Receipts on Account When the company receives payment from a customer for a sale that was made in the past, we must record the transaction in two places: Receipts Journal (to record the transaction) Receivable Subsidiary Ledger (to track the customer’s balance)

Receipts Journal-Page 3 Date Customer Receipt # PR Debit Cash Debit Sales Discount Credit Accounts Receivable Let’s assume that on December 5th we received payment from Ender Co. for the sale of December 2nd. Let’s also assume that our terms state that if the customer pays us within 10 days we will allow them to take a 2% discount. We issued Receipt # 220. The entry in the Receipts Journal would be as follows:

Receipts Journal-Page 3 Date Customer Receipt # PR Debit Cash Debit Sales Discount Credit Accounts Receivable Dec 5 Ender Co. 220 5,880 120 6,000 Notice we only received $5,880 (6,000 times 2% equals 120 Discount.) After the transaction has been journalized, we must immediately update the Customer’s Ledger Card. The column with the heading “Credit Accounts Receivable” instructs us to find the Customer’s Ledger Card (Ender Co.) and Credit it for $6,000. Notice that there is nothing in the “PR” column. A checkmark in this column signifies that the Customer’s Ledger Card has been updated.

Customer’s Ledger Card Date Explanation (Invoice or Receipt #) PR Debit Credit Balance Dec 2 Invoice 7601 S1 6,000 Dec 5 Receipt 220 R3 The journal instructed us to Credit the Customer’s Ledger Card for $6,000. We must then update the customer’s balance. The “R3” in the “PR” column signifies that this transaction came from the Receipts Journal Page 3. To complete the recording of this transaction we must return to the Receipts Journal and put a checkmark in the “PR” column.

Receipts Journal-Page 3 Date Customer Receipt # PR Debit Cash Debit Sales Discount Credit Accounts Receivable Dec 5 Ender Co. 220 √ 5,880 120 6,000 The recording of this transaction is now complete.

Purchases on Account When the company makes a purchase from a supplier and will not pay them until a later date, we must record the transaction in two places: Purchase Journal (to record the transaction) Payable Subsidiary Ledger (to track the supplier’s balance)

Purchase Journal-Page 2 Date Supplier Invoice # PR Credit Accounts Payable Debit Inventory Other Description Let’s assume that on December 12th we purchased merchandise inventory on credit from Tacid Co. on invoice T64 for $38,000. The entry in the Purchase Journal would be as follows:

Purchase Journal-Page 2 Date Supplier Invoice # PR Credit Accounts Payable Debit Inventory Other Description Dec 12 Tacid Co. T64 38,000 After the transaction has been journalized, we must immediately update the Supplier’s Ledger Card. The column with the heading “Credit Accounts Payable” instructs us to find the Supplier’s Ledger Card (Tacid Co.) and Credit it for $38,000. Notice that there is nothing in the “PR” column. A checkmark in this column signifies that the Supplier’s Ledger Card has been updated.

Supplier’s Ledger Card Date Explanation (Invoice or Cheque #) PR Debit Credit Balance Dec 12 Invoice T64 P2 38,000 The journal instructed us to Credit the Supplier’s Ledger Card for $38,000. We must then update the supplier’s balance. The “P2” in the “PR” column signifies that this transaction came from the Purchase Journal Page 2. To complete the recording of this transaction we must return to the Purchase Journal and put a checkmark in the “PR” column.

Purchase Journal-Page 2 Date Supplier Invoice # PR Credit Accounts Payable Debit Inventory Other Description Dec 12 Tacid Co. T64 √ 38,000 The recording of this transaction is now complete.

Disbursements on Account When the company makes a payment to a supplier for a purchase that was made in the past, we must record the transaction in two places: Disbursements Journal (to record the transaction) Payable Subsidiary Ledger (to track the supplier’s balance)

Disbursements Journal-Page 4 Date Supplier Cheque # PR Credit Cash Inventory Debit Accounts Payable Let’s assume that on December 20th we issued cheque #502 in payment of what we owed to Tacid Co. for the purchase of December 12th . Let’s also assume that their terms state that if we pay them within 10 days we can take a 2% discount. The entry in the Disbursements Journal would be as follows:

Disbursements Journal-Page 4 Date Supplier Cheque # PR Credit Cash Inventory Debit Accounts Payable Dec 20 Tacid Co. 502 37,240 760 38,000 Notice we only paid $37,240 (38,000 times 2% equals 760 Discount.). The discount must reduce the value of the inventory (not purchase discounts). After the transaction has been journalized, we must immediately update the Supplier’s Ledger Card. The column with the heading “Debit Accounts Payable” instructs us to find the Supplier’s Ledger Card (Tacid Co.) and Debit it for $38,000. Notice that there is nothing in the “PR” column. A checkmark in this column signifies that the Supplier’s Ledger Card has been updated.

Supplier’s Ledger Card Date Explanation (Invoice or Cheque #) PR Debit Credit Balance Dec 12 Invoice T64 P2 38,000 Dec 20 Cheque 502 D4 The journal instructed us to Debit the Supplier’s Ledger Card for $38,000. We must then update the supplier’s balance. The “D4” in the “PR” column signifies that this transaction came from the Disbursements Journal Page 4. To complete the recording of this transaction we must return to the Purchase Journal and put a checkmark in the “PR” column.

Disbursements Journal-Page 4 Date Supplier Cheque # PR Credit Cash Inventory Debit Accounts Payable Dec 20 Tacid Co. 502 √ 37,240 760 38,000 The recording of this transaction is now complete.