Chapter 9 Sales and Cash Receipts

Learning Objectives Explain and Journalize Entries for Sales, Sales Discounts, and Sales Returns and Allowances Record to Subsidiary Ledgers and Post to General Ledger Sales Transactions and Returns Record and Post Cash Receipts Transactions and Prepare a Schedule of Accounts Receivable

Learning Objective 1 Explain and Journalize Entries for Sales, Sales Discounts, and Sales Returns and Allowances

Seller’s View of a Merchandise Company – Gross Sales Retailer – a business that buys items from manufacturers and wholesalers and resells them to customers Gross Sales – cash or charge sales rung up or recorded in a register

Seller’s View of a Merchandise Company – Sales and Returns Figure 9.1 Recording Cash and Charge Sales for the Day Sales Journal Entry Sales Returns and Allowances - either a price reduction, new product or refund (Contra Revenue) Figure 9.2 Issuing a Credit Memorandum in the General Journal

Seller’s View of a Merchandise Company – Sales Discount Sales Discount – percentage reduction on invoice for prompt payments (Contra Revenue) Discount period is the time when a discount is granted

Seller’s View of a Merchandise Company – Discount Period Discount period is the time when a discount is granted Credit period is the length of time allowed to pay the amount owed on the bill

Seller’s View of a Merchandise Company – Sales Discount Figure 9.3 Recording Sales Discount

Sales Tax Payable Taxes collected on sales and forwarded to the state. This is a liability to the retailer The sales tax on the cash purchase is calculated as follows: $1,800 × .05 = $90 Tax $1,800 + $90 tax = $1,890 Cash

$1,200 Charge + $60 Tax = $1,260 Accounts Receivable Sales Tax Payable Here is how the sales tax on the charge sale is computed: $1,200 × .05 = $60 Tax $1,200 Charge + $60 Tax = $1,260 Accounts Receivable Figure 9.4 Sales with Sales Tax

Sales Tax Payable

Learning Objective 2 Record to Subsidiary Ledgers and Post to General Ledger Sales Transactions and Returns

Transactions on Account for Art’s Wholesale Clothing Company Art’s Wholesale Clothing Company, as a wholesaler, buys merchandise from suppliers and sells it to retailers, who in turn sell it to individual consumers. The following transactions occurred in April for Art’s Wholesale Clothing Company:

Sales Invoice Figure 9.5 Sales Invoice

April 3 Sold account merchandise to Hal’s Clothing, $800 April 3 Sold account merchandise to Hal’s Clothing, $800. Terms 2/10, n/30. The analysis The journal entry Figure 9.6 Merchandise Sold and Accounts Receivable

Accounts Receivable Subsidiary Ledgers A special ledger Contains a single type of account Subsidiary account for each customer Arranged alphabetically Can be in the form of a file, a notebook, or computer tapes or disks Posted to general ledger and recorded to the subsidiary ledger

Accounts Receivable Subsidiary Ledger Figure 9.7 Partial General Ledger of Art’s Wholesale Clothing Company and Accounts Receivable Subsidiary Ledger

Accounts Receivable Subsidiary Ledgers The general ledger account is called the controlling account. It summarizes or controls the subsidiary ledger. The total of the individual accounts will equal the controlling account ending balance.

The Transactions that Occurred In April Figure 9.8 Before Posting and Recording Sales Transactions

Posting and Recording Sales Transactions

Posting and Recording Sales Transactions When the subsidiary ledger is updated, a (✓) is placed in the PR column of the general journal Figure 9.9 Transaction for April 3 Posted and Recorded

Figure 9.9 Transaction for April 3 Posted and Recorded (cont.)

The Credit Memorandum Notification sent to a customer Indicates the amount of the goods returned or amount allowed for damaged goods The amount is subtracted (credited) from the customer’s account

Sample Credit Memorandum Figure 9.10 Sample Credit Memorandum from Art’s Wholesale Clothing Company

Postings and Recordings for the Credit Memorandum Figure 9.11 Postings and Recording for the Credit Memorandum into the Subsidiary and General Ledgers

Learning Objective 3 Record and Post Cash Receipts Transactions and Prepare a Schedule of Accounts Receivable

Cash Receipts Transactions Cash receipts for sales are journalized and posted Cash receipts on account are Journalized for the month Posted to the general ledger Posted to the accounts receivable subsidiary ledger

Cash Receipts Transactions Examples

Received check from Hal’s Clothing for payment of invoice no Received check from Hal’s Clothing for payment of invoice no. 1, less 2% discount. Figure 9.12 Recording Sales Discount in General Journal

Cash Receipts Transactions Occurred For Art’s Wholesale Clothing In April Figure 9.13 Journalized Cash Receipts Transactions

Figure 9.13 Journalized Cash Receipts Transactions (cont.)

Cash Receipts Transactions Occurred For Art’s Wholesale Clothing In April

Cash Receipts Transactions Posted to the Ledger and Subsidiary Ledger

Schedule of Accounts Receivable Figure 9.14 Schedule of Accounts Receivable

Summary of the chapter Sales Returns and Allowances and Sales Discount are contra-revenue accounts. Net Sales = Gross Sales - Sales Returns and Allowances - Sales Discounts. Discounts are not taken on sales tax, freight, or goods returned. The discount period is shorter than the credit period. Sales Tax Payable is a liability account. The normal balance of the accounts receivable subsidiary ledger is a debit balance.

Summary of the chapter A () in the PR of the general journal means the subsidiary ledger has been updated. The accounts receivable subsidiary ledger, organized in alphabetical order, is not in the same book as Accounts Receivable, the controlling account in the general ledger. When a credit memorandum is issued, the result is that Sales Returns and Allowances increase and Accounts Receivable decreases. When we record this entry into the general journal, we assume all parts of the transaction will be posted to the general ledger and recorded in the subsidiary ledger.

Summary of the chapter At the end of the month, the total of all customers’ ending balances in the accounts receivable subsidiary ledger should be equal to the ending balance in Accounts Receivable, the controlling account in the general ledger. The schedule of accounts receivable is an alphabetical list of companies with an outstanding balance.

Questions?

Figure 9.15 General Journal for September 18 and 19 and Blank Accounts Receivable Subsidiary Ledger

Figure 9.16 General Journal for May 18 and 19 and Blank Accounts Receivable Subsidiary Ledger