1. ACCOUNTING FOR SALES AND CASH RECEIPTS
CHAPTER ELEVEN
ACCOUNTING FOR SALES AND CASH RECEIPTS

2. MERCHANDISING BUSINESS
Purchases merchandise from vendors/suppliers and sells that merchandise to customers
Revenue is now from Sales.
Rather than the performance of services

3. MERCHANDISING BUSINESSES
Retailer
Sells to final consumers
Evidenced by:
Cash Register tape
Sales Ticket
One copy given to the customer and the other to the Accounting Department

4. MERCHANDISING BUSINESSES
Wholesaler
Purchases merchandise from manufacturer
Sells to retailers
Usually “on account”
Sales Invoice generated for each sale
One to customer
One to the Accounting Department
One shipped with merchandise

5. CREDIT MEMORANDUM
Issued by seller indicating the customer’s Accounts Receivable account has been credited for the amount of a:
Return - Merchandise returned for a refund
Allowance - Customer is granted a price reduction because of defect or other problems with the merchandise.
One copy of memo to the customer
One copy sent to Accounting Department

6. MERCHANDISE REVENUE ACCOUNTS
SALES
SALES TAX PAYABLE
SALES RETURNS & ALLOWANCES
SALES DISCOUNTS

7. The account is credited for the selling price of merchandise sold.
SALES ACCOUNT
REVENUE account used to record sales of merchandise. Similar to the Fees account used by a service business
SALES
DR.
CR. 
The account is credited for the selling
price of merchandise sold.

8. GENERAL JOURNAL Example: Made $100 cash sale Cash Sales DATE
DESCRIPTION
DEBIT PR
CREDIT 1
Cash 2
Sales 3
Made cash sale 4 5
Example:
Made $100 cash sale 6 7 8 9 10 11

9. GENERAL JOURNAL What if this sale had been made on account? Cash Sales
DATE
DESCRIPTION
DEBIT PR
CREDIT 1
Cash 2
Sales 3
Made cash sale 4 5 6
What if this sale had
been made on account? 7 8 9 10 11

10. account instead of cash.
GENERAL JOURNAL
DATE
DESCRIPTION
DEBIT PR
CREDIT
Accts. Rec./Customer 1 2 3 4 5
We would debit the
Accounts Receivable
account instead of cash. 6 7 8 9 10 11

11. Customers name is entered after Accounts Receivable
GENERAL JOURNAL
DATE
DESCRIPTION
DEBIT PR
CREDIT
Accts. Rec./Customer 1 2 3 4 5
Customers name is entered
after Accounts Receivable
in the journal. 6 7 8 9 10 11

12. GENERAL JOURNAL The Sales account is credited
DATE
DESCRIPTION
DEBIT PR
CREDIT
Accts. Rec./Customer 1 2
Sales 3
Made credit sale 4
The Sales account is credited
because a sale has been made
(even though the business has not
yet been paid for the merchandise). 5 6 7 8 9 10 11

13. The account is credited for the amount of tax imposed on the sales.
SALES TAX PAYABLE
LIABILITY account used to record the taxes imposed on sales and owed to the taxing authority.
SALES TAX PAYABLE
DR.
CR. 
The account is credited for the amount
of tax imposed on the sales.

14. SALES TAX PAYABLE  SALES TAX PAYABLE
LIABILITY account used to record the taxes imposed on sales and owed to the taxing authority.
SALES TAX PAYABLE
DR.
CR. 
The account is debited when the tax is
paid to the proper taxing authority.

15. GENERAL JOURNAL Example: A cash sale for $100 plus 5% sales tax. DATE
DESCRIPTION
DEBIT PR
CREDIT 1 2 3 4
Example:
A cash sale for $100
plus 5% sales tax. 5 6 7 8 9 10 11

16. Therefore, cash received ($100 selling price + $5 tax)
GENERAL JOURNAL
DATE
DESCRIPTION
DEBIT PR
CREDIT
Cash
105 00 1 2 3
Sales Tax would be $5
($100 x 5%)
Therefore, cash received
would be $105.
($100 selling price + $5 tax) 4 5 6 7 8 9 10 11

17. GENERAL JOURNAL Sales is credited for the selling price,
DATE
DESCRIPTION
DEBIT PR
CREDIT
Cash
105 00 1 2
Sales
100 00 3
Sales is credited for the selling price,
not the amount of cash received. 4 5 6 7 8 9 10 11

18. GENERAL JOURNAL $5 sales tax is credited to Sales Tax Payable. Cash
DATE
DESCRIPTION
DEBIT PR
CREDIT
Cash 1 2
Sales
100 00 3
Sales Tax Payable
5 00 4
Made cash sale 5
$5 sales tax is credited
to Sales Tax Payable. 6 7 8 9 10 11

19. SALES RETURNS & ALLOWANCES
CONTRA-REVENUE account used to record sales returns and sales allowances. Shown as a deduction from Sales on the Income Statement
SALES RETURNS & ALLOWANCES
DR.
CR. 
The account is debited when customer
returns merchandise or an allowance is granted.

20. GENERAL JOURNAL Example: Credit customer, Susan Chang,
DATE
DESCRIPTION
DEBIT PR
CREDIT 1 2 3 4
Example:
Credit customer, Susan Chang,
returns printer cartridges
(selling price $40 plus $2 sales tax). 5 6 7 8 9 10 11

21. Sales Returns & Allowances is debited for the selling price.
GENERAL JOURNAL
DATE
DESCRIPTION
DEBIT PR
CREDIT
Sales Returns &Allowances
40 00 1 2 3
Sales Returns & Allowances is
debited for the selling price. 4 5 6 7 8 9 10 11

22. GENERAL JOURNAL Sales Tax Payable is debited for the tax of $2.
DATE
DESCRIPTION
DEBIT PR
CREDIT
Sales Returns &Allowances
40 00 1 2
Sales Tax Payable
2 00 3
Sales Tax Payable is
debited for the tax of $2. 4 5 6 7 8 9 10 11

23. Accounts Receivable is
GENERAL JOURNAL
DATE
DESCRIPTION
DEBIT PR
CREDIT
Sales Returns &Allowances
40 00 1 2
Sales Tax Payable
2 00 3
Accts. Receivable/Chang
42 00 4
Issued credit memo for 5
returned merchandise 6 7
Accounts Receivable is
credited for $42. 8 9 10 11

24. SALES DISCOUNTS  SALES DISCOUNTS
CONTRA-REVENUE account used to record discounts given to customers who buy merchandise on account to encourage prompt payment.
SALES DISCOUNTS
DR.
CR. 
The account is debited for the amount
of the Cash Discount at the time of payment.

25. CREDIT TERMS
2/10, n/30
2% discount off
sales price

26. CREDIT TERMS
2/10, n/30
If paid within 10 days

27. CREDIT TERMS
2/10, n/30
Or the total
amount is due

28. CREDIT TERMS
2/10, n/30
In 30 days

29. Total amount due in 30 days.
CREDIT TERMS
1/10, n/30
1% off if paid in 10 days or
Total amount due in 30 days.

30. Total amount due in 60 days.
CREDIT TERMS
2/eom, n/60
2% off if paid before
the end of the month or
Total amount due in 60 days.

31. 3% off if paid within 10 days Total amount due in 60 days.
CREDIT TERMS
3/10 eom, n/60
3% off if paid within 10 days
after the end of month or
Total amount due in 60 days.

32. GENERAL JOURNAL Example: Merchandise was sold for $100
DATE
DESCRIPTION
DEBIT PR
CREDIT 1 2 3
Example:
Merchandise was sold for $100
with credit terms of 2/10, n/30,
and cash is received within
the discount period. 4 5 6 7 8 9 10 11

33. GENERAL JOURNAL $100 sale x 2% discount Cash 98 00 Sales Discounts
DATE
DESCRIPTION
DEBIT PR
CREDIT
Cash
98 00 1 2
Sales Discounts
2 00 3 4 5
$100 sale x 2% discount 6 7 8 9 10 11

34. GENERAL JOURNAL Cash 98 00 Sales Discounts 2 00
DATE
DESCRIPTION
DEBIT PR
CREDIT
Cash
98 00 1 2
Sales Discounts
2 00 3
Accts. Receivable/Cust.
100 00 4
Received cash on account 5 6 7 8 9 10 11

35. Sales Returns & Allowances and Sales Discounts are deducted from Sales
Income Statement
Sales
$38,500
Less: Sales returns and allowances
$200
Sales discounts
140
340
Sales Returns & Allowances
and Sales Discounts
are deducted from Sales
in the Revenue section
of the Income Statement.

36. Income Statement Sales $38,500 Less: Sales returns and allowances $200
Sales discounts
140
340
Net Sales
$38,160

37. POSTING SALES TRANSACTIONS IN THE GENERAL LEDGER
In the ledger account:
Step 1: Enter the date.
Step 2: Enter the amount of the transaction.
Step 3: Update the balance.
Step 4: Enter the journal page number.
In the journal:
Step 5: Enter the ledger account number.

38. ACCOUNTS RECEIVABLE LEDGER
A separate “subsidiary” ledger
Individual accounts receivable accounts for each customer
Often numbered
Filed either alphabetically or numerically
Accounts Receivable account in the general ledger is the “controlling account.”

39. POSTING TO THE ACCOUNTS RECEIVABLE LEDGER
In the Accounts Receivable ledger:
Step 1: Enter the date.
Step 2: Enter the amount.
Step 3: Enter the new balance.
Step 4: Enter the journal page number.
In the journal:
Step 5: Enter a slash (/) followed by a check mark () in the PR column.

40. Let’s review the posting
GENERAL JOURNAL
DATE
DESCRIPTION PR
DEBIT
CREDIT
Accts. Receivable/Lorenzo
1,596 00 1
April 4 2
Sales
1,520 00 3
Sales Tax Payable
76 00 4
Sale No. 133c 5
Let’s review the posting
for this transaction. 6 7 8 9 10 11

41. Accounts Receivable account.
GENERAL JOURNAL
DATE
DESCRIPTION PR
DEBIT
CREDIT
Accts. Rec./Lorenzo
1,596 00 1
April 4 2
Sales
1,520 00 3
Sales Tax Payable
76 00 4
Sale No. 133c 5
A $1,596 debit is posted
to the General Ledger
Accounts Receivable account. 6 7 8 9 10 11

42. FOUR-COLUMN ACCOUNT 122 ACCOUNTS RECEIVABLE
Account No.
BALANCE
DATE
ITEM PR
DR.
CR.
DR.
CR.
20--
Apr. 1
Balance
12,000 4 J8
1,596
13,596
This entry is posted in the same manner
as all other general ledger postings.

43. Accts. Receivable account number is entered into the PR column.
GENERAL JOURNAL
DATE
DESCRIPTION
DEBIT PR
CREDIT
April 4
Accts. Rec./Lorenzo
1,596 00 1
122 2
Sales
1,520 00 3
Sales Tax Payable
76 00 4
Sale No. 133c 5
Accts. Receivable account number is
entered into the PR column. 6 7 8 9 10 11

44. Now we need to post to the individual customer account.
GENERAL JOURNAL
DATE
DESCRIPTION
DEBIT PR
CREDIT
April 4
Accts. Rec./Lorenzo
1,596 00 1
122 2
Sales
1,520 00 3
Sales Tax Payable
76 00 4
Sale No. 133c 5 6
Now we need to post to the
individual customer account. 7 8 9 10 11

45. ACCOUNTS RECEIVABLE LEDGER
Name:
Enrico Lorenzo
Address:
5240 Tousley Court, Indianapolis, IN
BALANCE
DATE
ITEM PR
DEBIT
CREDIT
20--
Apr. 4 J8
1,596
1,596
Date is entered, Amount is recorded,
Balance is updated, and
Journal page number is referenced.

46. GENERAL JOURNAL A slash (/) is entered along with a
DATE
DESCRIPTION PR
DEBIT
CREDIT
1,596 00 1
April 4
Accts. Rec./Lorenzo
122 / 2
Sales
1,520 00 3
Sales Tax Payable
76 00 4
Sale No. 133c 5
A slash (/) is entered along with a
check mark () which indicates the entry
has been posted to the subsidiary ledger. 6 7 8 9 10 11

47. GENERAL JOURNAL The Sales and Sales Tax Payable entries
DATE
DESCRIPTION PR
DEBIT
CREDIT 1
April 4
Accts. Rec./Lorenzo
1,596 00
122 / 2
Sales
401
1,520 00 3
Sales Tax Payable
231
76 00 4
Sale No. 133c 5
The Sales and Sales Tax Payable entries
are posted to their general ledger accounts. 6 7 8 9 10 11

48. Now let’s look at the posting for a Sales Return entry.
GENERAL JOURNAL
DATE
DESCRIPTION PR
DEBIT
CREDIT
Sales Returns &Allow.
40 00 1
May 5 2
Sales Tax Payable
2 00 3
Accts. Rec./S. Chang
42 00 4
Returned Merchandise - 5
Credit Memo #72 6
Now let’s look at the posting
for a Sales Return entry. 7 8 9 10 11

49. GENERAL JOURNAL Sales Returns and Allowances
DATE
DESCRIPTION PR
DEBIT
CREDIT
May 5
Sales Returns &Allow.
40 00 1
401.1 2
Sales Tax Payable
2 00 3
Accts. Rec./S. Chang
42 00 4
Returned Merchandise - 5
Credit Memo #72 6
Sales Returns and Allowances
is posted in the normal manner.
Its account number is
recorded in the PR column. 7 8 9 10 11

50. GENERAL JOURNAL Sales Tax Payable is also posted in the normal manner.
DATE
DESCRIPTION PR
DEBIT
CREDIT 1
May 5
Sales Returns &Allow.
40 00
401.1 2
Sales Tax Payable
2 00
231 3
Accts. Rec./S. Chang
42 00 4
Returned Merchandise - 5
Credit Memo #72 6
Sales Tax Payable is also
posted in the normal manner.
Its account number is
recorded in the PR column. 7 8 9 10 11

51. GENERAL JOURNAL The $42 credit is posted to the
DATE
DESCRIPTION PR
DEBIT
CREDIT
May 5
Sales Returns &Allow.
40 00 1
401.1 2
Sales Tax Payable
2 00
231 3
Accts. Rec./S. Chang
122 /
42 00 4
Returned Merchandise - 5
Credit Memo #72 6
The $42 credit is posted to the
Accounts Receivable controlling account
and to the Subsidiary ledger account
for S. Chang. 7 8 9 10 11

52. Cash Receipt transactions are posted in a similar manner.
GENERAL JOURNAL
DATE
DESCRIPTION PR
DEBIT
CREDIT 1
April 14
Cash
1,596 00 2
Accts. Rec./E. Lorenzo
1,596 00 3
Received cash on account 4
Cash Receipt transactions
are posted in a similar manner. 5 6 7 8 9 10 11

53. GENERAL JOURNAL Cash is posted as usual. Cash 101 1,596 00
DATE
DESCRIPTION PR
DEBIT
CREDIT
April 14
Cash
101
1,596 00 1 2
Accts. Rec./E. Lorenzo
1,596 00 3
Received cash on account 4 5
Cash is posted as usual. 6 7 8 9 10 11

54. GENERAL JOURNAL The credit is posted to the
DATE
DESCRIPTION PR
DEBIT
CREDIT
April 14
Cash
101
1,596 00 1 2
Accts. Rec./E. Lorenzo
1,596 00
122 / 3
Received cash on account 4 5
The credit is posted to the
Accounts Receivable controlling account
and to the Subsidiary ledger account
for E. Lorenzo. 6 7 8 9 10 11

55. BANK CREDIT CARD SALES
Similar to cash sales because cash is available to the business as soon as an electronic deposit is made at the end of the day
Business receives amount of sale.
Less a processing fee

56. Made a bank credit card sale The seller will receive cash of $100.80.
GENERAL JOURNAL
DATE
DESCRIPTION PR
DEBIT
CREDIT
May 6
Cash
100 80 1 2 3 4
Made a bank credit card sale
of $100 (plus $5 tax).
The seller will receive cash of $
($ % fee) 5 6 7 8 9 10 11

57. Bank Credit Card Expense is debited for the processing fee.
GENERAL JOURNAL
DATE
DESCRIPTION PR
DEBIT
CREDIT
Cash
100 80 1
May 6 2
Bank Credit Card Exp.
4 20 3 4
Bank Credit Card Expense
is debited for the processing fee. 5 6 7 8 9 10 11

58. GENERAL JOURNAL Cash 100 80 Bank Credit Card Exp. 4 20 Sales 100 00
DATE
DESCRIPTION PR
DEBIT
CREDIT
Cash
100 80 1
May 6 2
Bank Credit Card Exp.
4 20 3
Sales
100 00 4
Sales Tax Payable
5 00 5
Made Credit Card Sale 6 7 8 9 10 11

59. SCHEDULE OF ACCOUNTS RECEIVABLE
Prepared to verify that the sum of the accounts receivable ledger balances equals the Accounts Receivable balance
Listing of customers and their balances
Usually prepared at the end of the month
Total of the balances listed is compared with the balance in the Accounts Receivable account.

60. Northern Micro Schedule of Accounts Receivable April 30, 20--
Helen Avery
$2,302
Susan Chang
651
Heidi Schwitzer
3,563
Ken Ulmet
3,315
Vivian Winston
4,500
$14,331
This should be the balance in the
Accounts Receivable controlling account.

61. ERRORS
If the Schedule of Accounts Receivable total and the Accounts Receivable balance do not agree:
Step 1 Verify the total of the schedule.
Step 2 Verify the postings to the accounts receivable ledger.
Step 3 Verify the postings to the Accounts Receivable in the general ledger.