1. © 2015 Cengage Learning. All Rights Reserved.
Departmental Sales
on Account and Sales
Returns and Allowances
LESSON
2-1
Learning Objectives
LO1 Explain the purpose of a departmental accounting system.
LO2 Journalize and post departmental sales on account using a sales journal.
LO3 Journalize and post departmental sales returns and allowances.
© 2015 Cengage Learning. All Rights Reserved.

2. Departmental Sales on Account
Lesson 2-1
Departmental Sales on Account
LO1
Managers use departmental data to make decisions relating to business operations.
In order to have comprehensive departmental data, however, a business should record sales and cash receipts data separately for each department.
The Realization of Revenue concept states that revenue is recorded at the time goods or services are sold.
© 2015 Cengage Learning. All Rights Reserved.

3. Journalizing Sales on Account
Lesson 2-1
Journalizing Sales on Account
LO2
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4. Proving the Sales Journal
Lesson 2-1
Proving the Sales Journal
LO2
The sales journal is proved and ruled when the page is filled and always at the end of each month.
Proving a journal means verifying that the total debits equal the total credits. To prove a journal:
1. Add each amount column and write the total.
2. Add the column totals for all debit columns.
3. Add the column totals for all credit
columns.
4. Verify that total debits and total credits are equal. Once a journal is proved, it should be ruled.
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5. Posting from a Sales Journal to a General Ledger Account
Lesson 2-1
Posting from a Sales Journal to a General Ledger Account
LO2
Each amount column total is posted to the general ledger account named in the column heading.
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6. Journalizing Sales Returns and Allowances
Lesson 2-1
Journalizing Sales Returns and Allowances
LO3
A form prepared by the vendor showing the amount deducted for returns and allowances is called a credit memorandum.
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7. Journalizing Sales Returns and Allowances
Lesson 2-1
Journalizing Sales Returns and Allowances
LO3
All sales returns and allowances are recorded in a general journal, as shown below.
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8. Sales Returns and Allowances
Lesson 2-1
Sales Returns and Allowances
LO3
An account that reduces a related account on a financial statement is known as a contra account.
An account showing deductions from a sales account is a contra revenue account.
Sales Returns and Allowances—Grills is a contra revenue account.
Sales returns and allowances are kept in a separate account and not deducted directly from the sales account.
This procedure helps the business see what proportion of the merchandise sold was returned by customers.
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9. Posting from a General Journal
Lesson 2-1
Posting from a General Journal
LO3
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10. Lesson 2-1 Audit Your Understanding
1. What is a benefit of recording sales and expenses by department?
ANSWER
Information such as departmental gross profit from operations can help business managers decide if each department is earning an appropriate profit.
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11. Lesson 2-1 Audit Your Understanding
2. What is a tax-exempt customer? Give an example.
ANSWER
A tax-exempt customer is not required to pay sales tax. Examples include federal, state, and local government agencies; not-for-profit educational institutions; and certain religious and charitable organizations.
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12. Lesson 2-1 Audit Your Understanding
3. What is the source document for a sale on account?
ANSWER
An invoice.
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13. Lesson 2-1 Audit Your Understanding
4. How does the Realization of Revenue concept apply to the recording of sales?
ANSWER
Sales are recorded at the time of sale, regardless of when payment is received.
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14. Lesson 2-1 Audit Your Understanding
5. For what purpose is a credit memorandum issued?
ANSWER
A credit memorandum is issued by a vendor to show the amount deducted from the customer’s account for returns and allowances.
© 2015 Cengage Learning. All Rights Reserved.