1. © 2014 Cengage Learning. All Rights Reserved.
Learning Objectives
LO1 Explain the relationship between the accounts receivable ledger and its controlling account.
LO2 Record sales on account using a sales journal.
© 2014 Cengage Learning. All Rights Reserved.

2. Subsidiary Ledgers and Controlling Accounts
Lesson 10-1
Subsidiary Ledgers and Controlling Accounts
LO1
Merchandising businesses get revenue from the sale of merchandise.
The amount a business receives from the sale of an item of merchandise is called the selling price.
A business must earn profit to survive and grow.
The amount a business adds to the cost of merchandise to establish the selling price is called markup.
Cost of merchandise + Markup = Selling Price

3. Subsidiary Ledgers and Controlling Accounts
Lesson 10-1
Subsidiary Ledgers and Controlling Accounts
LO1
The sale of merchandise can be:
On account
For cash
Revenue should be recorded when the sale is made, regardless of when payment is received.
An accounts receivable ledger is a subsidiary ledger containing all accounts for charge customers.
The total amount owed by these customers equals the balance in the controlling account, Accounts Receivable

4. Subsidiary Ledgers and Controlling Accounts
Lesson 10-1
Subsidiary Ledgers and Controlling Accounts
LO1
- A separate account is prepared in the accounts receivable ledger for each charge customer
- An account number is assigned to each customer account to increase the ease of filing and locating the accounts

5. Subsidiary Ledger Form
Lesson 10-1
Subsidiary Ledger Form
LO1 1
Account Name 2
Account Number 3
Date 4
Balance 5
Check Mark 6
Account Balance
Same column headings
Because AR has a normal debit balance, the AR ledger form does not require a credit balance column
Check mark in post ref column shows that the amount has been carried forward from a previous page rather than posted from a journal

6. Lesson 10-1
Sales Tax
LO2
Merchandising businesses sell to a variety of customers – individuals, businesses, schools, churches, etc.
State/cities require that tax be collected from customers for each sale made – usually stated as a percentage of sales.
A tax on a sale of merchandise or services is called a sales tax.

7. Lesson 10-1
Sales Tax
LO2
Businesses must file reports with the proper government agency and pay the amount of sales tax collected.
Accurate records of total sales and sales tax collected must be kept.
Sales tax collected is a LIABILITY until paid to the government agency.
Recorded in a separate liability account titled Sales Tax Payable
Increased by a credit and decreased by a debit

8. Lesson 10-1
Sales Journal
LO2
A sales journal is a special journal used to record only sales of merchandise on account.
Special amount columns – each transaction can be recorded on one line of the Sales Journal

9. Lesson 10-1
Sales Invoice
LO2
Sellers prepare an invoice to document a sale when merchandise is sold on account.
Describes the goods/services sold, the quantity, the price and the terms of sale
The sales invoice is considered by the customer as a purchase invoice.

10. Lesson 10-1
Sales Invoice
LO2

11. Lesson 10-1
Sale on Account
LO2
A sale on account transaction increases the amount to be collected later from a customer.
Accounts Receivable is debited for the total amount of the sales plus sales tax
Shows the increase in the AR asset account
Sales is credited for the price of the goods
Shows increase in the Sales revenue account
Sales Tax Payable is credited for the amount of sales tax
Shows increase in the Sales Tax Payable liability account

12. Lesson 10-1
Sale on Account
LO2
November 4. Sold merchandise on account to Wells Apartments, $454.50, plus sales tax, $27.27; total, $ Sales Invoice No. 498.
Accounts Receivable
481.77
Sales
454.50
Sales Tax Payable
27.27 1
Date 2
Customer Name 3
Sales Invoice Number 4
Total Amount Owed by Customer 5
Sales 6
Sales Tax

13. Lesson 10-1
Work Together 10-1: Start a new page for an accounts receivable ledger account
The customer is Venice Café, the account number is 120, and the balance on September 1 of the current year is $

14. Work Together 10-1 : Journalize the following transactions on page 9 of the sales journal
Classic Appliances operates in a state with 6% sales tax. The sales invoice source document is abbreviated as S.
Transaction: Sept. 2. Sold merchandise on account to Lenny Stanford, $1,600.00, plus sales tax. S221.

15. Work Together 10-1 : Journalize the following transactions on page 9 of the sales journal
Classic Appliances operates in a state with 6% sales tax. The sales invoice source document is abbreviated as S.
Transaction: Sept. 6. Sold merchandise on account to Washington City Schools, $ Tax Exempt. S222.

16. Work Together 10-1 : Journalize the following transactions on page 9 of the sales journal
Classic Appliances operates in a state with 6% sales tax. The sales invoice source document is abbreviated as S.
Transaction: Sept. 7. Sold merchandise on account to Venice Café, $2,560.00, plus sales tax. S223.

17. Work Together 10-1 : Journalize the following transactions on page 9 of the sales journal
Classic Appliances operates in a state with 6% sales tax. The sales invoice source document is abbreviated as S.
Transaction: Sept Sold merchandise on account to Washington City Schools, $1, S224.

18. Lesson 10-1 Audit Your Understanding
1. How are selling price and markup related?
ANSWER
Markup is the amount added to the cost of merchandise to set the selling price.

19. Lesson 10-1 Audit Your Understanding
2. What is the relationship between the accounts receivable ledger and its controlling account?
ANSWER
The total of the accounts in the accounts receivable subsidiary ledger equals the balance in the controlling account, Accounts Receivable.

20. Lesson 10-1 Audit Your Understanding
3. What column on a general ledger form is not on an accounts receivable ledger form?
ANSWER
Credit Balance

21. Lesson 10-1 Audit Your Understanding
4. What is the title of the general ledger account used to summarize the total amount due from all charge customers?
ANSWER
Accounts Receivable

22. Lesson 10-1 Audit Your Understanding
5. How are sales tax rates usually stated?
ANSWER
As a percent of sales

23. Lesson 10-1 Audit Your Understanding
6. Why is sales tax collected considered a liability?
ANSWER
The amount of sales tax collected is a business liability until paid to the government.