1. ACCOUNTING FOR CASH RECEIPTS AND PAYMENTS
CHAPTER TEN
ACCOUNTING FOR CASH RECEIPTS AND PAYMENTS

2. In the last chapter we looked at sales and purchases on account.
Now, its time to record cash receipts and cash payments for those transactions.
I bet we’re going to see lots of journal entries …What do you think, Poopsie?

3. GENERAL JOURNAL Cash 1,596 00 Accts. Rec./E. Lorenzo 1,596 00 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
Here is the entry to record
The receipt of cash from
One of our customers. 5 6 7 8
Now, let’s look at how to post this transaction to the General ledger and our subsidiary Accounts Receivable ledger. 9 10 11

4. GENERAL JOURNAL Cash 101 1,596 00 Accts. Rec./E. Lorenzo 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

5. GENERAL JOURNAL Cash 101 1,596 00 Accts. Rec./E. Lorenzo 1,596 00 DATE
DESCRIPTION PR
DEBIT
CREDIT
April 14
Cash
101
1,596 00 1 2
Accts. Rec./E. Lorenzo
122 /
1,596 00 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

6. Credit Terms
Now, let’s review what a credit period is and how to account for cash discounts available to purchasers and sellers.

7. Cash Discounts
Available if the bill is paid within the discount period
Seller calls it a Sales Discount.
Buyer calls it a Purchase Discount.
In this chapter, we will look at both the BUYER as well as the SELLER’s journal entries to record discounts

8. Sales Discounts
Another CONTRA-REVENUE account used to record discounts given to customers who buy merchandise on account and pay their bill early.
SALES DISCOUNTS
DR.
CR. +
The account is debited for the amount
of the Cash Discount at the time of payment.

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

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

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

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

13. CREDIT TERMS 1/10, n/45 Let’s try another . . .
Okie Dokie! Let me get this straight!. . .If I pay my bill within 10 days, I will get a 1% discount. Otherwise, the total amount is due in 45 days. Right??!!

14. Yee Haw! I’m on a roll. Give me another one!
CREDIT TERMS
2/eom, n/60
Yee Haw! I’m on a roll. Give me another one!
Eww. . That thar is a tough one. Humm. . I’ll give it a try. . .I will get 2% off if paid before the end of the month?!
Otherwise, the total amount is due in 60 days. Am I right?? Huh huh???

15. GENERAL JOURNAL DATE DESCRIPTION DEBIT PR CREDIT 1 2 3 Example:
A talking bike 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
Yep. It really talks! 9 10 11

16. GENERAL JOURNAL Cash 98 00 Sales Discounts 2 00 DATE DESCRIPTION DEBITPR
CREDIT
Cash
98 00 1 2
Sales Discounts
2 00 3 4 5
When payment is received with the discount period of 10 days, the customer takes a 2% discount
$100 sale x 2% = $2 6 7 8 9 10 11

17. GENERAL JOURNAL Cash 98 00 Sales Discounts 2 00 100 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
Accounts Receivable is credited for the full amount owed because the customer is paying his bill, for the bike, in FULL! 6 7 8 9 10 11

18. Reminder- The Sales Discounts Account is
Another CONTRA-REVENUE account used to record discounts given to customers who buy merchandise on account and pay their bill early.
SALES DISCOUNTS
DR.
CR. +
The account is debited for the amount
of the Cash Discount at the time of payment.

19. Okay- Here is a tough one…Wanna try, little man?
Man, why are you a farmer? You should have been an accountant!
Good job!
Okay- Here is a tough one…Wanna try, little man?
Example:
On 1/1, Suzie Cue, purchased $400 of M&Ms + 5% sales tax of $20. She was given credit terms of 2/10,n/30. She later returned ¼ of the candy because she went on a diet. She paid the balance due within the discount period.
How much did Suzie Cue pay?
Bring it on!!
She originally owed $420. She returned ¼ of it ($420 x ¼= $105) so now she owes $315. She can ONLY take a discount on the sale portion NOT the sales tax! Discount = $300 x 2%= $6
She would pay $420-$105- $6 disc= $309
This would be a great quiz question…

20. Income Statement Sales Returns & Allowances and Sales Discounts
$257,180
Less: Sales returns and allowances
$940
Sales discounts
1,980
- 2,920
$254,260
People returned stuff in the last chapter and now, I’m giving them discounts, how am I supposed to make any
Sales Returns & Allowances
and Sales Discounts
are deducted from Sales
in the Revenue section
of the Income Statement.

21. Now, let’s look at Purchases Discounts that we take on the merchandise we bought.
CONTRA-PURCHASES account used to record cash discounts allowed on purchases.
PURCHASES DISCOUNTS
I love getting discounts on the candy I buy for my store!
DR.
CR. +
The account is credited for the discount granted
by the vendor for prompt payment.

22. and payment is made within
GENERAL JOURNAL
DATE
DESCRIPTION
DEBIT PR
CREDIT 1 2 3 4
Example:
We purchased $100 of pink toilet paper on account with credit terms 2/10, n/30
and payment is made within
the discount period. 5 6 7 8 9 10 11

23. And Accounts Payable is credited for the entire amount
GENERAL JOURNAL
DATE
DESCRIPTION
DEBIT PR
CREDIT
Purchases
100 00 1 2
Accounts Payable/ Vendor
100 00 3
(Purchased toilet paper ) 4 5
Purchases is debited
And Accounts Payable is credited for the entire amount
of the purchase. (Because we don’t know if we will pay within the discount period when we first make the purchase.) 6 7 8 9 10 11

24. GENERAL JOURNAL
DATE
DESCRIPTION
DEBIT PR
CREDIT
Accounts Payable/Vendor
100 00 1 2
Cash
98 00 3 4 5
If payment is made within 10 days, then Cash is credited for the actual amount paid, $98.
($100 - $2 discount) 6 7 8 9 10 11

25. Purchase Discounts is credited for the discount amount, $2
GENERAL JOURNAL
DATE
DESCRIPTION
DEBIT PR
CREDIT
Accounts Payable/Vendor
100 00 1 2
Cash
98 00 3
Purchases Discounts
2 00 4
(Paid for toilet paper w/2% disc) 5 6
Purchase Discounts is credited
for the discount amount, $2
($100 x 2%). 7 8 9 10 11

26. GENERAL JOURNAL Cash payment transactions
DATE
DESCRIPTION PR
DEBIT
CREDIT 1
April 10
Accts. Payable/B.B. Small
4,800 00 2
Cash
4,800 00 3
(Made payment on account) 4 5
Cash payment transactions
are posted in a similar manner
as the
cash receipt transactions. 6 7 8 9
Let’s take a look… 10 11

27. GENERAL JOURNAL The debit is posted to the
DATE
DESCRIPTION PR
DEBIT
CREDIT
Accts. Payable/B.B. Small
4,800 00 1
April 10
202 / 2
Cash
4,800 00 3
(Made payment on account) 4 5
The debit is posted to the
Accounts Payable controlling account
and to the Subsidiary ledger account
for B.B. Small. 6 7 8 9 10 11

28. GENERAL JOURNAL Cash is posted as usual. Accts. Payable/B.B. Small
DATE
DESCRIPTION PR
DEBIT
CREDIT
April 10
Accts. Payable/B.B. Small
202 /
4,800 00 1 2
Cash
101
4,800 00 3
(Made payment on account) 4 5
Cash is posted as usual. 6 7 8 9 10 11

29. Schedule Of Accounts Payable (Similar to the Schedule of Accounts Receivable)
Listing of suppliers and their balances
Prepared to verify that the sum of the Accounts Payable Ledger balances equals the Accounts Payable balance in the General Ledger.
Usually prepared at the end of the month

30. Northern Micro Schedule of Accounts Payable April 30, 20--
Chocolate Supply, Inc.
$3,300
Datasoft
2,500
BB. Small.
800
Televax, Inc.
5,300
$11,900
This should be the balance in the
Accounts Payable controlling account in the General Ledger.

31. Let’s look at an Income Statement for The Fat Mouse Candy Store
Sales
Sales Returns & Allowances
These are all of our new accounts…
Sales Discounts
Purchases
Purchases Returns & Allowances
Purchases Discounts
Freight-In
I want to know the cost of the candy on my store shelves…

32. The Fat Mouse Candy Store Income Statement
Sales
$257,180
Less: Sales returns and allowances
$940
Sales discounts
1,980
- 2,920
Net Sales
$254,260
This is the final price we charged our
customers for the merchandise.
Lot’s of people like my sweets!

33. Sales
$257,180
Less: Sales returns & allow.
940
Sales Discounts
1,980
2,920
Net Sales
$254,260
Cost of Goods Sold:
Merchandise Inv., Jan 1
$67,000
Purchases
$87,840
Less:Purch. ret. & allow.
932
1,348
- 2,280
Purchases discounts
Net purchases
$85,560
Add freight-in
+2,360
Delivered Cost of Purchases
+87,920
$154,920
Goods Available for Sale
So, I guess I have to wait until the next chapter to see my profit? Aw shucks!
This is the cost of ALL the goods that were offered for sale during the entire period.