3. CHAPTER SEVENTEEN THE CASH RECEIPTS JOURNAL

4. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 17-3 1.Record transactions in a cash receipts journal. 2.Total, prove, and rule the cash receipts journal. 3.Post from the cash receipts journal. 4.Record bank credit card sales. THE CASH RECEIPTS JOURNAL Objectives:

5. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 17-4 Advantages to using the Cash Receipts Journal All entries for the receipt of cash are grouped in one place. Important facts about each transaction are written on a single line. There is limited need to enter account titles or long explanations.

6. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 17-5 Advantages to using the Cash Receipts Journal (continued) The cash receipts journal allows for great division of labor -- one person can be put in charge of entering cash receipts. However, more than one person should be responsible to verifying cash transactions.

7. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 17-6 Setting Up a Cash Receipts Journal This special journal is used to record only receipts of cash.

8. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 17-7 Setting Up a Cash Receipts Journal (continued) The cash receipts journal has six money columns. All debits are entered in the last two money columns. The sales discount debit column is used to record sales discounts taken by credit customers who are paying invoices with the discount period.

9. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 17-8 Setting Up a Cash Receipts Journal (contiued) The Cash Debit column is used to record the amount of cash received in each transaction.

10. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 17-9 Setting Up a Cash Receipts Journal (continued) The credits section of the cash receipts journal contains four money columns. The Accounts Receivable Credit column is used to record amounts that credit customers are paying on account.

11. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 17-10 Setting Up a Cash Receipts Journal (continued) The Sales Tax Payable Credit column is used to record the sales tax received from cash sales. The Sales Credit column is used to record the amounts received from cash sales.

12. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 17-11 Setting Up a Cash Receipts Journal (continued) The last money column in the credits section -- Other Accounts -- is used to record the credit entries for cash received from sources other than cash sales, sales tax, and amounts collected from credit customers.

13. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 17-12 Recording Transactions in the Cash Receipts Journal It is customary to record the amount of cash on hand at the beginning of each month in the Cash Receipts journal.

14. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 17-13 Recording Transactions in the Cash Receipts Journal (continued) For cash sales, cash is debited in the Cash Receipts column and sales are credited in the Sales Credit column. Sales tax is recorded in the Sales Tax Payable column.

15. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 17-14 Recording Transactions in the Cash Receipts Journal (continued) When cash is received for sales from a credit customer and it is after the discount period, cash is debited and Accounts Receivable is credited using both special columns.

16. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 17-15 Recording Transactions in the Cash Receipts Journal (continued) For a cash refund for the return of damaged supplies cash is debited and Other Accounts is credited, writing in the account Supplies.

17. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 17-16 Recording Transactions in the Cash Receipts Journal (continued) When cash is received by the owner for an additional investment, cash is debited using the Cash Receipts column and the Other Accounts Credit column is used, writing in the owner’s capital account.

18. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 17-17 Posting From the Cash Receipts Journal During the month, each amount appearing in the Other Accounts Credit column of the cash receipts journal is posted individually to the account named in the entry.

19. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 17-18 Posting From the Cash Receipts Journal (continued) After totaling the columns, the total debits should equal the total credits. Each column total is posted to the appropriate account using the acceptable post-referencing notations.

20. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 17-19 Bank Credit Card Sales The cash receipts journal is an effective tool for recording the fees that banks charge the business for the use of credit card sales. By recording each fee as the sale is made, an accurate financial picture can be achieved.

21. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 17-20 Accounting Terminology Bank credit card sales Cash receipts journal Discount on credit card sales Memorandum entry Posting reference CR

22. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 17-21 Chapter Summary The cash receipts journal is a special journal in which all of business’s cash receipts transactions can be recorded in chronological order.

23. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 17-22 Chapter Summary (continued) The use of a cash receipts journal makes an accounting system more efficient. The cash receipts journal usually has several special money columns that simplify the recording of routine entries.

24. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 17-23 Chapter Summary (continued) A memorandum entry is made in the cash receipts journal to record the cash balance at the beginning of each month. The totals of the debits and credits must be equal for each transaction recorded in the cash receipts journal.

25. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 17-24 Chapter Summary (continued) The amounts in the Other Accounts column are posted individually during the month to the general ledger accounts indicated in the journal entries. Column totals are posted at the end of the month to the appropriate accounts.

26. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 17-25 Chapter Summary (continued) Cross-footing is the process of checking the accuracy of column totals. Businesses can adapt the cash receipts journal form to meet their needs.

27. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 17-26 Chapter Summary (continued) Bank credit card sales are treated as cash sales by the retailer and recorded in the cash receipts journal. The credit card fee expense account is debited for the amount of discount that the bank deducts.

28. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 17-27 Investigating on the Internet As a research assignment, access the TastyKake ® web site and find the annual report. Write a report listing the sources of information that might concern cash receipts.

29. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 17-28 1. Grouping cash receipts in one place is a disadvantage for a company. 2. It is customary to record the beginning balance of cash as a memorandum entry. 3. There is one standard cash receipts journal form that must be used, according to the IRS. Topic Quiz Answer the following true/false questions: TRUE FALSE

30. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 17-29 (Return to Topic Quiz) 1. Grouping cash receipts in one place is a disadvantage for a company. FALSE It is an advantage. Because they are all in one place, the chances of errors is reduced.

31. McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 17-30 (Return to Topic Quiz) 3. There is one standard cash receipts journal form that must be used, according to the IRS. FALSE The cash receipts journal can be modified to the needs of the business.