Recording Transactions Using a General Journal LESSON 10-3 4/27/2017 LESSON 10-3 Recording Transactions Using a General Journal Sales Returns & Allowance

Why do we need Sales Returns & Allowance? Customer received the wrong item. The merchandise was damaged. Shortage in shipment to the customer. When customers return merchandise, it decreases the amount of sales that has occurred.

Sales Returns & Allowance Account Sales Returns & Allowance is a CONTRA Account It has an opposite balance side to its “partner” account. Sales Sales Returns & Allowance CREDIT Normal balance side DEBIT Normal balance side

CREDIT MEMORANDUM FOR SALES RETURNS AND ALLOWANCES page 285 Source Document LESSON 10-3

JOURNALIZING SALES RETURNS AND ALLOWANCES page 286 March 11. Granted credit to Village Crafts for merchandise returned, $58.50, plus sales tax, $3.51, from S160; total, $62.01. Credit Memorandum No. 41. LESSON 10-3

T-Account Results 6 page 286 Acct Recv – Village Crafts Sales Tax Payable Sales original dr 62.01 3.51 original cr 58.50 original cr 62.01 Allow cr Allow dr 3.51 Result of Sales & Returns: Sales + Tax $62.01 Sales Returns + Tax - 62.01 Value of Sales & Tax owed 0 Sales Returns and Allowances Allow dr 58.50 LESSON 10-3

Review Computing Sales Tax Sales tax is a Percentage calculated on the sales amount. The calculated sales tax is then added to the sale amount. Purchased item for $100 with sales of 4%. $100.00 $100.00 Total Item Amount (Sales) X 4% + 4.00 Sales Tax Amount (Sales Tax Payable) $ 4.00 $104.00 Total Sales Amount (Accts Receivable)