2. Accounting Is Fun! 1 Chapter 10 & 11 Special Journals

3. Accounting Is Fun! 2 Chapter 10 & 11 Performance objectives: Performance objectives: 1. New accounts for merchandising business 2. Invoices 3. Cash discounts, credit card expense and notes payable 4. Sales journal 5. Purchase journal 6. Schedule of accounts receivable 7. Schedule of accounts payable 8. Sales returns and allowances 9. Purchase returns and allowances 10. Cash receipts journal 11. Cash payments journal

4. Accounting Is Fun! 3 Reminder Contra accounts: Contra accounts: Attached to another account Attached to another account Opposite “+” & “-” Opposite “+” & “-”

5. Accounting Is Fun! 4 Describe The Specific Accounts Used By A Merchandising Firm

6. Accounting Is Fun! 5 Accounts Used by Merchandising Firm Nine new accounts (T accounts on page 330) Nine new accounts (T accounts on page 330) Assets: Assets: 1. Merchandising Inventory Stock of goods that company buys & intends to resell Stock of goods that company buys & intends to resell Examples: Examples: Shoes in shoe store Shoes in shoe store Boomerangs and kites in kite store Boomerangs and kites in kite store This account shows all the inventory after Purchases account is closed This account shows all the inventory after Purchases account is closed

7. Accounting Is Fun! 6 Accounts Used by Merchandising Firm Liabilities: Liabilities: 2. Sales Tax Payable We collect sales tax for the government, and thus we must record the liability when we receive the money We collect sales tax for the government, and thus we must record the liability when we receive the money We will pay later We will pay later

8. Accounting Is Fun! 7 Accounts Used by Merchandising Firm Revenues: Revenues: 3. Sales account Account used to record sales revenue from selling shoes, boomerangs, groceries, etc. Account used to record sales revenue from selling shoes, boomerangs, groceries, etc. Contra revenues: Contra revenues: 4. Sales Returns & Allowances From seller’s point of view, account used to record returned merchandise or reductions in revenues because merchandise was damaged From seller’s point of view, account used to record returned merchandise or reductions in revenues because merchandise was damaged Reduction to revenues Reduction to revenues 5. Sales Discounts From seller’s point of view, account used to record cash discounts given for prompt payment of “on account” sales From seller’s point of view, account used to record cash discounts given for prompt payment of “on account” sales Reduction to revenues Reduction to revenues

9. Accounting Is Fun! 8 Accounts Used by Merchandising Firm Expenses: Expenses: 6. Purchases Account used to record the cost of merchandise bought for resale Account used to record the cost of merchandise bought for resale Only for purchased items you intend to resell Only for purchased items you intend to resell At closing, we have to count inventory to see if we used all our purchases At closing, we have to count inventory to see if we used all our purchases 9. Freight In account Account used to record shipping costs for purchases Account used to record shipping costs for purchases Contra expenses: Contra expenses: 7. Purchases Returns & Allowances From purchaser’s point of view, account used to record returned merchandise or reductions in expenses because merchandise was damaged From purchaser’s point of view, account used to record returned merchandise or reductions in expenses because merchandise was damaged Reduction to expenses Reduction to expenses 8. Purchases Discounts From purchaser’s point of view, account used to record cash discounts earned for prompt payment of “on account” purchases From purchaser’s point of view, account used to record cash discounts earned for prompt payment of “on account” purchases

10. Accounting Is Fun! 9Invoices Seller issues invoice Seller issues invoice Items shipped Items shipped Cost Cost Terms Terms Mode of shipping Mode of shipping Seller’s point of view: Seller’s point of view: Sales invoice Sales invoice Increase sales revenue Increase sales revenue Buyer’s point of view: Buyer’s point of view: Purchase invoice Purchase invoice Increase purchases Increase purchases

11. Accounting Is Fun! 10 Invoices

12. Accounting Is Fun! 11 Mode of Shipping FOB destination FOB destination Seller pays for shipping (freight) Seller pays for shipping (freight) Title (rights of ownership) transfer to buyer when the goods are received Title (rights of ownership) transfer to buyer when the goods are received FOB shipping FOB shipping Buyer pays for shipping (freight) Buyer pays for shipping (freight) Title (rights of ownership) transfer to buyer when the goods are delivered to the shipper Title (rights of ownership) transfer to buyer when the goods are delivered to the shipper Shipping costs: Shipping costs: Listed on invoice & paid with invoice total or Listed on invoice & paid with invoice total or Paid directly to shipper Paid directly to shipper *FOB = free on board *FOB = free on board

13. Accounting Is Fun! 12 Customers & Vendors When we buy something from a business, they are called: When we buy something from a business, they are called: Suppliers Suppliers Creditors Creditors Vendor Vendor When we sell something to another business or individual, they are called: When we sell something to another business or individual, they are called: Customer Customer

14. Accounting Is Fun! 13 Cash Discounts Discounts given as an incentive to pay the bill early Discounts given as an incentive to pay the bill early Why? Why? Cash is king! Cash is king! Or, “Cash is Queen! (Why not?) Or, “Cash is Queen! (Why not?) Seller records as a “Sales Discount” Seller records as a “Sales Discount” Reduction in sales Reduction in sales Buyer records as a “Purchase Discount” Buyer records as a “Purchase Discount” Reduction in purchases Reduction in purchases Not all sellers offer cash discounts Not all sellers offer cash discounts

15. Accounting Is Fun! 14 “Purchases Discount” Reduction in Purchases 2/10, N/30 2% Discount on Invoice Total (after any returns or allow. & not Including Freight) If Paid Within… 10 Days From The Date on the Invoice – Start Counting One Day After Invoice Date “Net” If You Don’t Take Discount, You Must Pay “Net Due” By… 30 Days After Invoice Date “Two Ten Net Thirty”

16. Accounting Is Fun! 15 “Sales Discount” Reduction in Sales 2/10, N/30 2% Discount on Invoice Total (after any returns or allow. & not Including Freight) If Paid Within… 10 Days From The Date on the Invoice – Start Counting One Day After Invoice Date “Net” If You Don’t Take Discount, You Must Pay “Net Due” By… 30 Days After Invoice Date “Two Ten Net Thirty”

17. Accounting Is Fun! 16 Credit Period The time the seller allows the buyer before full payment on a charge sale has to be made The time the seller allows the buyer before full payment on a charge sale has to be made 2/10, N/30 2/10, N/30 The “N/30” is the credit period The “N/30” is the credit period The credit period for the customer is 30 days long The credit period for the customer is 30 days long

18. Accounting Is Fun! 17 Determine Cash Discounts According To Credit Terms

19. Accounting Is Fun! 18 Determine Cash Discounts According To Credit Terms Sales discounts Sales discounts Kite Flight (our customer) pays us within the 10 day discount period: 2/10,N/30 Kite Flight (our customer) pays us within the 10 day discount period: 2/10,N/30

20. Accounting Is Fun! 19 Determine Cash Discounts According To Credit Terms Purchase discounts Purchase discounts We pay our supplier (Plywood Wholesaler) within the 15 day discount period: 1/15,N/45 We pay our supplier (Plywood Wholesaler) within the 15 day discount period: 1/15,N/45

21. Accounting Is Fun! 20 Credit Card Expense When businesses accept credit card payments from customers, the business must pay the credit card company a fee When businesses accept credit card payments from customers, the business must pay the credit card company a fee The expense is called: The expense is called: Credit card expense Credit card expense

22. Accounting Is Fun! 21 Notes Notes Payable Notes Payable The account containing the balance of promissory notes The account containing the balance of promissory notes Liability Liability “Debt” “Debt” Promissory Note A written promise to pay a specified amount at a specified time Issuer records: Notes receivable Asset Holder records: Notes payable Liability

23. Accounting Is Fun! 22 New Transaction for this Chapter: When we borrow $600 from the bank, the account on our books is called: When we borrow $600 from the bank, the account on our books is called: Notes payable (We Owe  Debt) Notes payable (We Owe  Debt) When we pay off the notes payable and the interest we owe ($600 N.P. & $60 interest): When we pay off the notes payable and the interest we owe ($600 N.P. & $60 interest):

24. Accounting Is Fun! 23 Special Journals Books of original entry Books of original entry (S) Sales Journal (chapter 10): (S) Sales Journal (chapter 10): Merchandise sales on account Merchandise sales on account (P) Purchase Journal (chapter 10) (P) Purchase Journal (chapter 10) Merchandise purchases on account Merchandise purchases on account (CR) Cash Receipts journal (chapter 11) (CR) Cash Receipts journal (chapter 11) Cash Received Cash Received (CP) Cash Payments journal (chapter 11) (CP) Cash Payments journal (chapter 11) Cash Payments Cash Payments (J) the General Journal handles all other transactions (J) the General Journal handles all other transactions

25. Accounting Is Fun! 24 Special Journals Why special journals? Special journals help to: Why special journals? Special journals help to: Avoid repetitious recording activities Avoid repetitious recording activities Separate different duties within the accounting department which help to: Separate different duties within the accounting department which help to: Increases efficiency Increases efficiency Reduce theft and fraud Reduce theft and fraud Separation of duties Separation of duties

26. Accounting Is Fun! 25 Sales Journal - Chapter 10 Journalizing: Journalizing: Record “on account” sales Record “on account” sales Page 336 Page 336 Date Date Invoice # Invoice # Name Name Posting reference Posting reference Accounts Receivable Accounts Receivable Debit Debit Sales Tax Payable Sales Tax Payable Credit Credit Sales Sales Credit Credit DR = CR on every line! DR = CR on every line! Posting: Picture, page 337 Each time you record a business transaction: Post amount to customer’s account in the Accounts Receivable subsidiary ledger After you post, place check mark in the sales journal posting reference column next to the customer's name At the end of the period Double lines (page 336) Check that DR = CR Post all totals to general ledger After you post, place account numbers below column totals in sales journal

27. Accounting Is Fun! 26 Accounts Receivable Ledger We have a separate ledger just for the customers accounts receivable!! We have a separate ledger just for the customers accounts receivable!! “Subsidiary ledger” “Subsidiary ledger” This ledger only has accounts for customers This ledger only has accounts for customers One for each customer: see page 338 to 339 One for each customer: see page 338 to 339 Most computerized systems use account numbers, not check marks during posting Most computerized systems use account numbers, not check marks during posting (Accounts Receivable) is listed in the general ledger: (Accounts Receivable) is listed in the general ledger: At the end of the period we post the accounts receivable total amount from the sales journal At the end of the period we post the accounts receivable total amount from the sales journal “Controlling account” “Controlling account” At the end of the period, we must prepare a Schedule of Accounts Receivable!! At the end of the period, we must prepare a Schedule of Accounts Receivable!! Picture on page 341 Picture on page 341

28. Accounting Is Fun! 27 Purchase Journal - Chapter 10 The Purchase Journal is the flip-side of the Sales Journal The Purchase Journal is the flip-side of the Sales Journal The company selling uses the Sales Journal (chapter 10) The company selling uses the Sales Journal (chapter 10) The company buying uses the Purchase Journal (chapter 10) The company buying uses the Purchase Journal (chapter 10) Do companies use both? Do companies use both? Yes! Yes!

29. Accounting Is Fun! 28 Record Transactions in 3-Column Purchase Journal (Ch 10) Journalizing: Journalizing: Record “on account” merchandise purchases Record “on account” merchandise purchases Page 374 Page 374 Journalizing date Journalizing date Name Name Invoice # Invoice # Invoice date! Invoice date! Terms Terms PR PR Accounts Payable Accounts Payable Credit Credit Freight in Freight in Debit Debit Purchases Purchases Debit Debit DR = CR on every line! DR = CR on every line! Posting (pages 347 to 350) Each time you record a business transaction: Post amount to supplier’s account in the Accounts Payable subsidiary ledger After you post, place check mark in the Purchases Journal posting reference column At the end of the period Double lines Crossfooting: Accounts payable column = sum of all debits? Horizontal & vertical addition to prove DR = CR Post all totals to general ledger After you post, place account numbers below column totals in purchases journal

30. Accounting Is Fun! 29 Accounts Payable Ledger We have a separate ledger just for the suppliers’ accounts payable! We have a separate ledger just for the suppliers’ accounts payable! “Subsidiary ledger” “Subsidiary ledger” This ledger only has accounts for suppliers This ledger only has accounts for suppliers One for each supplier: see page 349 to 350 One for each supplier: see page 349 to 350 Most computerized systems use account numbers, not check marks during posting Most computerized systems use account numbers, not check marks during posting (Accounts Payable) is listed in the general ledger: (Accounts Payable) is listed in the general ledger: At the end of the period we post the accounts payable total amount from the purchase journal At the end of the period we post the accounts payable total amount from the purchase journal “Controlling account” “Controlling account” At the end of the period, we must prepare a Schedule of Accounts Payable! At the end of the period, we must prepare a Schedule of Accounts Payable! Picture on page 350 Picture on page 350

31. Accounting Is Fun! 30 Journalize “Sales Returns & Allowances” “Sales Returns & Allowances” “Sales Returns & Allowances” Contra revenue Contra revenue Reduces the sales revenue account Reduces the sales revenue account Credit memorandums (example page 342) Credit memorandums (example page 342) “Written statement indicating a seller’s willingness to reduce the amount of the buyer’s debt.” “Written statement indicating a seller’s willingness to reduce the amount of the buyer’s debt.” Seller says to customer: “I'll reduce the amount you owe us.” Seller says to customer: “I'll reduce the amount you owe us.” Dodson Plumbing Supply tells Barlow that they will reduce the amount he owns them by $54.00 Dodson Plumbing Supply tells Barlow that they will reduce the amount he owns them by $54.00 Journal entry: credit Accounts Receivable, debit “Sales Returns & Allowances” Journal entry: credit Accounts Receivable, debit “Sales Returns & Allowances” Why is it called “credit” memorandum? Why is it called “credit” memorandum? Because it’s from the seller’s point of view Because it’s from the seller’s point of view Credit to Accounts Receivable! Credit to Accounts Receivable!

32. Accounting Is Fun! 31 Post “Sales Returns & Allowances” Post “Sales Returns & Allowances” to “Sales Returns & Allowances” account Post “Sales Returns & Allowances” to “Sales Returns & Allowances” account Then post twice to the Account Receivable accounts Then post twice to the Account Receivable accounts What do you mean I have to post twice? What do you mean I have to post twice? Page 343 Page 343 Because we have to post once to the Account Receivable in the General Ledger & once to the customer’s individual Accounts Receivable in the Accounts Receivable subsidiary ledger Because we have to post once to the Account Receivable in the General Ledger & once to the customer’s individual Accounts Receivable in the Accounts Receivable subsidiary ledger 113/√ 113/√

33. Accounting Is Fun! 32 Journalize and Post “Sales Returns & Allowances” Returns involving sales tax Returns involving sales tax Page 344 Page 344

34. Accounting Is Fun! 33 Journalize Transactions Involving “Purchase Returns & Allowances” in General Journal Flip side of Sales Returns & Allowances Flip side of Sales Returns & Allowances Excellent note left upper corner page 351 Excellent note left upper corner page 351 The buyer receives a credit memorandum The buyer receives a credit memorandum Page 351 – good t-account example Page 351 – good t-account example Journalizing & posting – page 352 Journalizing & posting – page 352 Must post to both: Must post to both: Accounts Payable (control account) in General Ledger Accounts Payable (control account) in General Ledger Individual’s Accounts Payable in Accounts Payable subsidiary ledger Individual’s Accounts Payable in Accounts Payable subsidiary ledger 221/√ 221/√

35. Accounting Is Fun! 34 Cash Receipts Journal (Ch 11) Contains all transactions in which cash is received Contains all transactions in which cash is received All debits to cash! All debits to cash! If you receive cash, you must put it here! If you receive cash, you must put it here! Example on page 384 Example on page 384 Each line represents a transaction where we receive cash Each line represents a transaction where we receive cash DR = CR for each line DR = CR for each line All the way at the end: All the way at the end: Cash debit Cash debit Credit card debit Credit card debit All the rest are credits All the rest are credits Post after each journal entry: Post after each journal entry: Accounts Receivable (PR = √) Accounts Receivable (PR = √) “other accounts” (PR = # for that account) “other accounts” (PR = # for that account) At the end of the period: Date for last day Single line before totaling Double line after totals Post all the column totals After posting, place account # under column totals Place “X” under “other accounts” to indicate that you already posted these amounts Make sure that DR = CR

36. Accounting Is Fun! 35 Cash Payments Journal (Ch 11) Contains all transactions in which cash goes out, or is paid out Contains all transactions in which cash goes out, or is paid out All credits to cash! All credits to cash! If you pay cash, you must put it here! If you pay cash, you must put it here! Remember rule about cash: Remember rule about cash: Always pay with a check! Always pay with a check! Example on page 391 Example on page 391 Each line represents a transaction where we write a check to pay cash Each line represents a transaction where we write a check to pay cash Date Date List checks in consecutive order (even void checks) List checks in consecutive order (even void checks) Name of account debited Name of account debited All the way at the end All the way at the end Cash credit Cash credit Purchase discount credit Purchase discount credit All the rest are debits All the rest are debits DR = CR for each line DR = CR for each line Post after each journal entry: Accounts Payable (PR = √) “other accounts” (PR = # for that account) At the end of the period: Date for last day Single line before totaling Double line after totals Post all the column totals After posting, place account # under column totals Place “X” under “other accounts” to indicate that you already posted these amounts Make sure that DR = CR

37. Accounting Is Fun! 36 Check & Deposit Register When we do Spa Magic, in addition to the cash receipts and cash payments journals, we will have to record all checking account activity in a checkbook register When we do Spa Magic, in addition to the cash receipts and cash payments journals, we will have to record all checking account activity in a checkbook register

38. Accounting Is Fun! 37 Good Note Page 398: Page 398: Post from special journals in this order: Post from special journals in this order: Sales journal Sales journal Purchase journal Purchase journal Cash receipts journal Cash receipts journal Cash payments journal Cash payments journal

39. Accounting Is Fun! 38 Review Of Chapter 10 & 11 Sales Journal Sales Journal Purchase Journal Purchase Journal Cash Receipts Journal Cash Receipts Journal Cash Payments Journal Cash Payments Journal

40. Accounting Is Fun! 39 Sales Journal Journalizing: Journalizing: Record “on account” sales Record “on account” sales Page 336 Page 336 Date Date Invoice # Invoice # Name Name Posting reference Posting reference Accounts Receivable Accounts Receivable Debit Debit Sales Tax Payable Sales Tax Payable Credit Credit Sales Sales Credit Credit DR = CR on every line! DR = CR on every line! Posting: Picture, page 337 Each time you record a business transaction: Post amount to customer’s account in the Accounts Receivable subsidiary ledger After you post, place check mark in the sales journal posting reference column next to the customer's name At the end of the period Double lines (page 336) Check that DR = CR Post all totals to general ledger After you post, place account numbers below column totals in sales journal

41. Accounting Is Fun! 40 Record Transactions in 3-Column Purchase Journal Journalizing: Journalizing: Record “on account” merchandise purchases Record “on account” merchandise purchases Page 374 Page 374 Journalizing date Journalizing date Name Name Invoice # Invoice # Invoice date! Invoice date! Terms Terms PR PR Accounts Payable Accounts Payable Credit Credit Freight in Freight in Debit Debit Purchases Purchases Debit Debit DR = CR on every line! DR = CR on every line! Posting (pages 347 to 350) Each time you record a business transaction: Post amount to supplier’s account in the Accounts Payable subsidiary ledger After you post, place check mark in the Purchases Journal posting reference column At the end of the period Double lines Crossfooting: Accounts payable column = sum of all debits? Horizontal & vertical addition to prove DR = CR Post all totals to general ledger After you post, place account numbers below column totals in purchases journal

42. Accounting Is Fun! 41 Cash Receipts Journal Contains all transactions in which cash is received Contains all transactions in which cash is received All debits to cash! All debits to cash! If you receive cash, you must put it here! If you receive cash, you must put it here! Example on page 384 Example on page 384 Each line represents a transaction where we receive cash Each line represents a transaction where we receive cash DR = CR for each line DR = CR for each line All the way at the end: All the way at the end: Cash debit Cash debit Credit card debit Credit card debit All the rest are credits All the rest are credits Post after each journal entry: Post after each journal entry: Accounts Receivable (PR = √) Accounts Receivable (PR = √) “other accounts” (PR = # for that account) “other accounts” (PR = # for that account) At the end of the period: Date for last day Single line before totaling Double line after totals Post all the column totals After posting, place account # under column totals Place “X” under “other accounts” to indicate that you already posted these amounts Make sure that DR = CR

43. Accounting Is Fun! 42 Cash Payments Journal Contains all transactions in which cash goes out, or is paid out Contains all transactions in which cash goes out, or is paid out All credits to cash! All credits to cash! If you pay cash, you must put it here! If you pay cash, you must put it here! Remember rule about cash: Remember rule about cash: Always pay with a check! Always pay with a check! Example on page 391 Example on page 391 Each line represents a transaction where we write a check to pay cash Each line represents a transaction where we write a check to pay cash Date Date List checks in consecutive order (even void checks) List checks in consecutive order (even void checks) Name of account debited Name of account debited All the way at the end All the way at the end Cash credit Cash credit Purchase discount credit Purchase discount credit All the rest are debits All the rest are debits DR = CR for each line DR = CR for each line Post after each journal entry: Accounts Payable (PR = √) “other accounts” (PR = # for that account) At the end of the period: Date for last day Single line before totaling Double line after totals Post all the column totals After posting, place account # under column totals Place “X” under “other accounts” to indicate that you already posted these amounts Make sure that DR = CR

44. Accounting Is Fun! 43 Demonstration Problem Journalize and post one transaction in the sales journal Journalize and post one transaction in the sales journal Look at a schedule of accounts receivable Look at a schedule of accounts receivable

45. Accounting Is Fun! 44 Transaction on One Line

46. Accounting Is Fun! 45 Post to Subsidiary Ledger

47. Accounting Is Fun! 46 Place Post. Ref. in Journal!

48. Accounting Is Fun! 47 Total at End of Period and Post Totals Post

49. Accounting Is Fun! 48 Post Accounts Receivable

50. Accounting Is Fun! 49 Post. Ref. = 114 ( ) Post

51. Accounting Is Fun! 50 Post Sales Tax Payable

52. Accounting Is Fun! 51 Post. Ref. = 213 ( ) Post

53. Accounting Is Fun! 52 Post Sales

54. Accounting Is Fun! 53 Post. Ref. = 411 ( ) ( ) ( )

55. Accounting Is Fun! 54 Prove DR = CR ( ) ( ) ( )

56. Accounting Is Fun! 55 At the End of the Period, Track What Customers Owe You

57. Accounting Is Fun! 56 Demonstration Problem We will journalize and post a transaction in the cash payments journal We will journalize and post a transaction in the cash payments journal

58. Accounting Is Fun! 57 Cash Payments Journal with a Previously Recorded Transaction

59. Accounting Is Fun! 58 Record Payment of Advertising Expense

60. Accounting Is Fun! 59 Post to Advertising Expense

61. Accounting Is Fun! 60 Post. Ref. = 613

62. Accounting Is Fun! 61 At End of Period, Total All Columns

63. Accounting Is Fun! 62 Other Accounts Debit Post. Ref. = X POST

64. Accounting Is Fun! 63 Post to 111

65. Accounting Is Fun! 64 Post. Ref. = 111 POST

66. Accounting Is Fun! 65 Post to 211

67. Accounting Is Fun! 66 Post. Ref. = 211 POST

68. Accounting Is Fun! 67 Post to 513

69. Accounting Is Fun! 68 Post. Ref. = 513

70. Accounting Is Fun! 69 Prove DR = CR