CHAPTER ELEVEN INTRODUCTION TO MERCHANDISING BUSINESSES: SALES

McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved Describe the difference between cash, charge account, and credit card sales. 2.Compute sales tax. 3.Use credit terms. 4.Compute the cash discount and amount of payment due on an invoice. 5.Apply the procedure for handling sales returns and allowances. INTRODUCTION TO MERCHANDISING BUSINESSES: SALES Objectives:

McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved Selling at Retail Cash Sales Charge Sales Credit Card Sales Sales Tax

McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved Selling at Wholesale Most selling at the wholesale level is done on credit through the use of invoices.

McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved Credit Terms Credit terms listed on the invoice tell when the customer must pay for the goods.

McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved Credit Terms 2/10, n/30 means: A cash discount of 2% is allowed if paid within 10 days. If not, the balance is due within 30 days.

McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved Sales Returns and Allowances Sometimes a customer will return merchandise or request an allowance. The procedure for handling returns and allowances on credit sales involves the use of a credit memorandum or credit slip listing the details of the credit

McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved Accounting Terminology Allowance Cash discount Charge accounts Credit cards Credit memorandum Inventory Invoice Merchandise Merchandising business Retailers Sales returns and allowances Sales slip Sales tax Source documents Statement of account Wholesalers

McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved Chapter Summary A merchandising business earns its revenue by selling merchandise (goods) that it has purchased. Merchandising businesses are usually either wholesalers or retailers.

McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved Chapter Summary (continued) Some retailers sell only for cash, and others sell both for cash and on credit. Charge accounts and credit cards are two common types of credit used in retail stores. Wholesalers make most of their sales on credit.

McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved Chapter Summary (continued) When sales are made, merchandising businesses must record information about them on source documents. Retailers prepare cash register tapes and sales slips. Wholesalers prepare invoices. An invoice is a bill for the merchandise.

McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved Chapter Summary (continued) States, cities, and counties may impose a sales tax. The retailer collects this tax from customers and periodically remits it to the appropriate governmental agency.

McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved Chapter Summary (continued) Wholesalers often include a cash discount in their credit terms to encourage early payment. This discount is deducted from the invoice total if payment is made within a specified number of days.

McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved Chapter Summary (continued) When a customer returns merchandise that was sold on credit or receives an allowance on such merchandise, a credit memorandum, or credit slip, is issued.

McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved When an invoice reads 2/10 it means that the customers can get a 2% discount if the bill is paid within 10 days. 2. N/30 means that the balance is due at the end of thirty days. 3. Companies may choose whether or not to charge sales tax. Topic Quiz Answer the following true/false questions: TRUE FALSE TRUE

McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved Investigating on the Internet As a research assignment, access a business website and report sources of information that might related to merchandising businesses.

McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved (Return to Topic Quiz) 3. Companies may choose whether or not to charge sales tax. FALSE If the state in which the business is operating has a sales tax, then sales taxes must be charged for each transaction.