Accounting Week 9

Special Journals Using an expanded journal is not practical or efficient as the amount of transactions grows. Special journals that capture a specific type of transaction can be used. The journalizing effort can be shared among multiple bookkeepers/accounting clerks. The posting effort can be shared among multiple bookkeepers/accounting clerks. There are several special journals, the business decides which it will use.

Sales Journal Transaction: sales to customers on account ONLY! Debit Accounts Receivable Credit Sales and Sales Tax Payable A/R debit = Sales credit + Sales Tax Payable credit Need to identify the customer Source document is usually a sales invoice

Sales Tax Payable Collected by business, not kept by business Creates a liability for business Money owed to government entities Sales tax rate usually shown as percentage such as 7.5% (.075 in decimal) Multiply sale amount by rate to find tax. Customer purchase is $100, assume sales tax rate of 8% Sales tax is $8 ($100 * .08) Customer pays $108 ($100 for merchandise plus $8 sales tax).

Cash Receipts Journal Transaction: any cash received IN TO the business is recorded in this journal. Source document is usually a receipt. Cash will ALWAYS be debited!

Cash Receipt transactions Cash/credit card/debit card sales Debit cash Credit sales and sales tax payable Business owner invests cash in business Credit owner’s capital account (General Credit) Customer pays business “on account” Credit accounts receivable What if customer receives a sales discount?

Sales Discount Sales Discount has a normal debit balance. It affects the Sales account which has a normal credit balance. So, Sales Discount reduces the account it affects, namely Sales. So, Sales Discount is referred to as a “contra” account since it runs contrary to or opposite the account if affects. Recall, the business has an accounts receivable at the full amount that the customer owes however the customer ends up paying less than the sales invoice amount so Sales Discount reflects that difference.

Sales Discount Customer owes business $1,080 so accounts receivable is debited $1,080 which equals a Sales credit of $1,000 and Sales Tax Payable credit of $80 (8% sales tax rate). Terms of sale on sales invoice are 2/10, n/30. Customer pays within 10 days so they can take discount on the SALE AMOUNT ONLY, NOT TOTAL. $1,000 * .02 = $20 discount on sale amount. Also need to calculate reduction is sales tax since amount being paid by customer is less. $20 * .08 = $1.60 How is this payment journalized? Credit Accounts Receivable full amount $1,080 Debit Sales Discount $20 to reflect 2% discount Debit Sales Tax Payable $1.60 to reflect discount Debit Cash $1,058.40 ($1,080 - $20 - $1.60)

Sales Discount $1,080 credit = $1,058.40 debit + $20 debit + $1.60 debit Debits = Credits, which is what we want!

Credit Memo Business will prepare a credit memorandum to identify the amount of the credit or reduction to the customer’s Accounts Receivable. Credit memo will be source document for any return and allowance transactions. Business captures the return or allowance amount in an account known as Sales Returns and Allowances As with Sales Discounts this lets business track returns and allowances in place of debiting the Sales account.

Sales Returns and Allowances Sales Returns and Allowances (SRA) has normal debit balance. It affects the Sales account which has a normal credit balance. So, SRA reduces the account it affects, namely Sales. So, SRA is referred to as a “contra” account since it runs contrary to or opposite the account if affects.

Sales Returns and Allowances To journalize a return you CREDIT Accounts Receivable/Customer the total amount of sale plus sales tax and DEBIT Sales Returns and Allowances the amount of the sale and DEBIT Sales Tax Payable the amount of sales tax. To journalize an allowance you CREDIT Accounts Receivable/Customer the amount of the allowance and DEBIT Sales Returns and Allowances the amount of the allowance and DEBIT Sales Tax Payable the amount of sales tax. This contra accounts are used so the Sales account is not affected with debits.

Sales Returns and Allowances