1. Ch. 14 Section 2: Analyzing Sales Transactions
Accounting II
Ms. Alltucker

2. Learning Objectives What you will learn: Why it’s important:
How to record the sales of merchandise on account
How to use the accounts receivable subsidiary ledger
How to post to the accounts receivable subsidiary ledger
The use of the sales tax payable account, and its debit and credit rules
The use of the sales returns and allowances account and its debit and credit rules
Why it’s important:
It is essential to record sales transactions correctly as they reflect the revenue of a business.

3. Analyzing Sales Transactions
Each sales transaction is recorded so that at the end of the day the store can report sales by each category
Cash
Credit cards
Bank card
Total sales

4. Analyzing Sales Transactions
Sale on account
Sale of merchandise that will be paid for at a later date, charge sale or a credit sale
Charge customer

5. Sales Slip Sales slip form that lists the details of a sale
The date of the sale
The name of the customer
The description, quantity, and price of an item sold
Usually prepared in multiple copies.
Pre-numbered sales slips help businesses keep track of all sales made on account

6. Sales slips

7. Sales Tax
Most states and some cities tax the retail sale of goods and services sales tax
Vary from state to state
Stated as a percentage of a sale
Paid by the customer and collected by the business
Business acts as the collection agent for the state or city government
Business adds the price of tax to the price of the item
Periodically the business sends the collected sales tax to the state
Becomes a liability until it is paid by the business

8. Sales Tax
Business keeps a record of the sales tax owned to the state in a liability account Sales Tax Payable
Sales Tax Payable
Debit –
Decrease Side
Credit +
Increase Side
Normal Balance

9. Calculating Sales Tax Calculating Sales Tax
Multiply the total selling price by the sales tax rate
Example:
Casey Klein bought $200 worth of merchandise. The sales tax is 6%
200 X .06 = $12
= $212 total transaction amount

10. Credit Terms Credit terms states the time allowed for a payment
Space is provided on the sales slip to indicate the credit term
n/30
N = net (or total amount of the sale)
30 = number of days the customer has to pay for the merchandise Example: 30 days
n/30  full amount is due in 30 days

11. Credit terms
n/30  payment is due on December 31st (30 days past December 1st
Date of sale
Credit term

12. The accounts receivable ledger
Separate ledger that contains an account for each charge customer
Subsidiary ledger ledger or book that contains detailed data summarized to a controlling account in the general ledger
Details of the individuals and business that owe money to a company
Same debit and credit rules apply
Controlling account balance equals the total of all the account balances in the subsidiary ledger
Accounts receivable is a controlling account
Serves as a control on the accuracy of the balances in the accounts receivable subsidiary ledger after all posting is complete

13. Accounts receivable ledger
General Ledger
Accounts Receivable—controlling account $10,000
Accounts Receivable Subsidiary Ledger
Individual Accounts Within Ledger:
Brown, Joshua $2,000
Clark, Gillian 3,000
Greene, Jason 1,000
Perez, Sarita 4,000
Total $10,000
Controlling account balance equals total of accounts in subsidiary ledger.

14. Accounts receivable subsidiary ledger form

15. Accounts receivable subsidiary ledger form
Lines on the top for the name and address of the customer
Arranged in alphabetical order
Not usually numbered
3 amount columns
Debit and credit columns are used to show increases and decreases
One balance column—asset account—normal balance is debit

16. Recording sales on account
Business Transaction
ANALYSIS Identify 1. The accounts affected are Accounts Receivable (controlling), Accounts Receivable—Casey Klein (subsidiary), Sales, and Sales Tax Payable.
On December 1, On Your Mark sold merchandise on account to Casey Klein for $200 plus sales tax of $12, Sales Slip 50.

17. Recording sales on account
Business Transaction (cont'd.)
ANALYSIS Classify 2. Accounts Receivable (controlling) and Accounts Receivable—Casey Klein (subsidiary) are asset accounts. Sales is a revenue account. Sales Tax Payable is a liability account.
On December 1, On Your Mark sold merchandise on account to Casey Klein for $200 plus sales tax of $12, Sales Slip 50.

18. Recording sales on account
Business Transaction (cont'd.)
ANALYSIS + / – 3. Accounts Receivable (controlling) and Accounts Receivable—Casey Klein (subsidiary) are increased by the total amount, $212 (dollar amount of merchandise sold plus sales tax). Sales is increased by the dollar amount of merchandise sold, $200. Sales Tax Payable is increased by the amount of sales tax charged, $12.
On December 1, On Your Mark sold merchandise on account to Casey Klein for $200 plus sales tax of $12, Sales Slip 50.

19. Recording sales on account
Business Transaction (cont'd.)
On December 1, On Your Mark sold merchandise on account to Casey Klein for $200 plus sales tax of $12, Sales Slip 50.
DEBIT-CREDIT RULE 4. Increases to asset accounts are recorded as debits. Debit Accounts Receivable (controlling) for $212. Also debit Accounts Receivable—Casey Klein (subsidiary) for $212.
5. Increases to revenue and liability accounts are recorded as credits. Credit Sales for $200 and Sales Tax Payable for $12.

20. Recording sales on account
Business Transaction (cont'd.)
On December 1, On Your Mark sold merchandise on account to Casey Klein for $200 plus sales tax of $12, Sales Slip 50.
Debit +
212
Credit
200 –
Accounts Receivable
Subsidiary Ledger Sales Tax Casey Klein Payable 12

21. Recording sales on account
Business Transaction (cont'd.)
On December 1, On Your Mark sold merchandise on account to Casey Klein for $200 plus sales tax of $12, Sales Slip 50.
JOURNAL ENTRY 7.
Accts. Rec/
Casey Klein =
Two accounts
are affected

22. Recording sales on account
When merchandise is sold to a tax-exempt organization, such as school districts, sales tax is not charged 20
2013
Dec 3
Accts. Rec./So. Branch High School
Sales
Sales slip 51

23. Sales returns and allowances
All merchandising businesses expect that some customers will be dissatisfied with their purchases
Any merchandise returned for credit or a cash refund is called a sales return
Sometimes a customer discovers that merchandise is damaged or defective but still usable
Merchants may reduce the sales price for the damaged merchandise
Price reduction granted for damaged goods kept by the customer sales allowance

24. Sales returns and allowances
If the sales return or allowance occurs on a charge sale, the business prepares a credit memorandum
Lists the details of a sales return or allowance
charge customer’s account is credited (decreased) for the amount of the return or allowance
Includes spaces for the date and sales slip number of the original sale
Includes sales tax charged on the original sale
Same form used if it’s a sales allowance
Credit memos are pre-numbered and prepared in duplicates

25. Sales return and allowances
Credit memorandum

26. Sales returns and allowances account
Decrease the total revenue earned by a business
NOT RECORDED IN THE SALES ACCOUNT
Recorded in the Sales Returns & Allowances
Summarizes the total returns and allowances for damaged, defective, or otherwise unsatisfactory merchandise
Carefully analyzed to detect trouble
CONTRA ACCOUNT balance decreases the balance of its related account (Revenue or Sales)
Sales Returns and Allowances
Debit +
Increase Side
Normal Balance
Credit –
Decrease Side

27. Sales returns & Allowances
Business Transaction
On December 4, On
Your Mark issued
Credit Memorandum 124
to Gabriel Ramos for the
return of merchandise
purchased on account,
$150 plus $9 sales tax.
JOURNAL ENTRY 7.

28. Contra account Contra Account
Decreases the balance of its related account.
The normal balance side of any contra account is always the opposite of the normal balance side of its related account

29. Cash refund
Sometimes a merchant will give a customer a cash refund instead of a credit
In the book examples: only give a cash refund if the original sale was a cash sale
For cash refunds:
Cash in bank is credited instead of Accounts Receivable

30. Posting to the accounts receivable subsidiary ledger
Don’t forget about: Accts. Rec./Gabriel Ramos
Indicates that both Accounts Receivable and Gabriel Ramos are affected
Also put a slash in the post reference column
This indicates that the amount is posted in two separate accounts
After it is posted in the Accts Receivable ledger post the account number
After it is posted the subsidiary ledger place a check mark to the right of the slash
LOOK ON PAGE 365 FOR AN EXAMPLE