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Accounting for Sales and Cash Receipts

Chapter 14. $. Accounting for Sales and Cash Receipts. $. Making Accounting Relevant Sales of products or services generate revenue for a business. $. If you work at a retail business, what sales transaction have you participated in? Discuss the actions involved in the sale. $. Chapter 14.

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Accounting for Sales and Cash Receipts

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  1. Chapter 14 $ Accounting for Sales and Cash Receipts $ Making Accounting Relevant Sales of products or services generate revenue for a business. $ If you work at a retail business, what sales transaction have you participated in? Discuss the actions involved in the sale. $

  2. Chapter 14 $ Section 1 Accounting for a Merchandising Business • What You’ll Learn • The purpose of a merchandising business. • The difference between a retailer and a wholesaler. • Uses of the Merchandise Inventory account, and its rules of debit and credit. • Uses of the Salesaccount, and its rules of debit and credit. $ $ $

  3. Section 1 Accounting for a Merchandising Business (con’t.) Chapter 14 $ Why It’s Important As consumers, we buy goods from merchandising businesses daily. You need to understand the nature of these transactions to maintain accounting records for a merchandising business. $ $ • Key Terms • retailer • wholesaler • merchandise $ • inventory • sales

  4. Section 1 Accounting for a Merchandising Business (con’t.) Chapter 14 $ The Operating Cycle of a Merchandising Business $ $ $

  5. Section 1 Accounting for a Merchandising Business (con’t.) Chapter 14 $ Merchandise Inventory Account Goods bought for resale are called merchandise. The items of merchandise the business has in stock are referred to as inventory. The inventory is represented in the general ledger by the asset account Merchandise Inventory. $ $ Merchandise Inventory $ Debit + Increase Side Normal Balance Credit – Decrease Side

  6. Section 1 Accounting for a Merchandising Business (con’t.) Chapter 14 $ Sales Account When a retail merchandising business sells goods to a customer, the amount of the merchandise sold is recorded in the Sales account. $ $ Sales $ Credit + Increase Side Normal Balance Debit – Decrease Side

  7. Section 1 Accounting for a Merchandising Business (con’t.) Chapter 14 $ Check Your Understanding $ What type of account is Merchandise Inventory? $ $

  8. Chapter 14 $ Section 2 Analyzing Sales Transactions • What You’ll Learn • How to record the sale 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 rules of debit and credit. • The use of the Sales Returns and Allowances account, and its rules of debit and credit. $ $ $

  9. Section 2 Analyzing Sales Transactions (con’t.) Chapter 14 $ Why It’s Important It is essential to record sales transactions correctly as they reflect the revenue of the business. $ • Key Terms • sale on account • charge customer • credit cards • sales slip • sales tax • credit terms • accounts receivable subsidiary ledger $ • subsidiary ledger • controlling account • sales return • sales allowance • credit memorandum • contra account $

  10. Section 2 Analyzing Sales Transactions (con’t.) Chapter 14 $ The Sales Slip A sales slip lists the details of a sale: $ • The date of the sale. • The name of the customer. • The description, quantity, and price of the item(s) sold. $ $

  11. Section 2 Analyzing Sales Transactions (con’t.) Chapter 14 $ Sales Tax Most states and some cities tax the retail sale of goods and services. This tax is called a sales tax. The sales tax rate is usually stated as a percentage of the sale, such as 5%. The business keeps a record of the sales tax owed to the state in a liability account called Sales Tax Payable. $ $ $ Sales Tax Payable Credit + Increase Side Normal Balance Debit – Decrease Side

  12. Section 2 Analyzing Sales Transactions (con’t.) Chapter 14 $ Credit Terms • Credit terms state the time allowed for payment. • The credit terms for the sale to Casey Klein are n/30. • The “n” stands for the net, or total, amount of the sale. • The “30” stands for the number of days the customer has to pay for the merchandise. $ $ $

  13. Section 2 Analyzing Sales Transactions (con’t.) Chapter 14 $ The Accounts Receivable Ledger The accounts receivable subsidiary ledger contains an account for each charge customer. $ 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. Section 2 Analyzing Sales Transactions (con’t.) Chapter 14 $ The Accounts Receivable Subsidiary Ledger Form $ • The subsidiary ledger account form has lines at the top for the name and address of the customer. $ $

  15. Section 2 Analyzing Sales Transactions (con’t.) Chapter 14 $ Recording Sales on Account $ Business Transaction On December 1 On Your Mark sold merchandise on account to Casey Klein for $200 plus sales tax of $12, Sales Slip 50. $ ANALYSISIdentify 1. The accounts affected are Accounts Receivable(controlling), Accounts Receivable—Casey Klein (subsidiary), Sales, and Sales Tax Payable. $

  16. Section 2 Analyzing Sales Transactions (con’t.) Chapter 14 $ Recording Sales on Account (con’t.) Business Transaction (con’t.) $ On December 1 On Your Mark sold merchandise on account to Casey Klein for $200 plus sales tax of $12, Sales Slip 50. $ ANALYSISClassify 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. $

  17. Section 2 Analyzing Sales Transactions (con’t.) Chapter 14 $ Recording Sales on Account (con’t.) Business Transaction (con’t.) $ On December 1 On Your Mark sold merchandise on account to Casey Klein for $200 plus sales tax of $12, Sales Slip 50. 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. $ $

  18. Section 2 Analyzing Sales Transactions (con’t.) Chapter 14 $ Recording Sales on Account (con’t.) Business Transaction (con’t.) $ 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. $

  19. Section 2 Analyzing Sales Transactions (con’t.) Chapter 14 $ Recording Sales on Account (con’t.) Business Transaction (con’t.) On December 1 On Your Mark sold merchandise on account to Casey Klein for $200 plus sales tax of $12, Sales Slip 50. $ T ACCOUNTS 6. Accounts Receivable Sales $ Debit + 212 Credit – Credit + 200 Debit – $ Accounts Receivable Subsidiary Ledger Sales Tax Casey Klein Payable Credit – Debit – Credit + 200 Debit + 212

  20. Section 2 Analyzing Sales Transactions (con’t.) Chapter 14 $ Recording Sales on Account (con’t.) Business Transaction (con’t.) $ 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. $

  21. Section 2 Analyzing Sales Transactions (con’t.) Chapter 14 $ Sales Returns and Allowances • Any merchandise returned for credit or a cash refund is called a sales return. • A price reduction granted for damaged goods kept by the customer is called a sales allowance. $ $ $

  22. Section 2 Analyzing Sales Transactions (con’t.) Chapter 14 $ Sales Returns and Allowances (con’t.) • A credit memorandum lists the details of a sales return or allowance. $ $ $

  23. Section 2 Analyzing Sales Transactions (con’t.) Chapter 14 $ The Sales Returns and Allowances Account • decreases the total revenue earned by a business; • summarizes the total returns and allowances for damaged, defective, or other otherwise unsatisfactory merchandise; • is a contra account. $ $ $ Sales Returns and Allowances Credit – Decrease Side Debit + Increase Side Normal Balance

  24. Section 2 Analyzing Sales Transactions (con’t.) Chapter 14 $ The Sales Returns and Allowances Account 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. $

  25. Section 2 Analyzing Sales Transactions (con’t.) Chapter 14 $ Check Your Understanding $ Businesses collect sales tax from customers. In what account is the sales tax recorded? $ $

  26. Chapter 14 $ Section 3 Analyzing Cash Receipt Transactions $ • What You’ll Learn • How to record cash receipt transactions. • The use of the Sales Discounts account, and its rules of debit and credit. $ $

  27. Section 3 Analyzing Cash Receipt Transactions (con’t.) Chapter 14 $ Why It’s Important It is essential to understand the various ways that businesses receive cash and how to record the receipt of cash. $ $ • Key Terms • cash receipt • cash sale • bankcard $ • cash discount • sales discount

  28. Section 3 Analyzing Cash Receipt Transactions (con’t.) Chapter 14 $ Kinds of Cash Receipts $ • payments from charge customers • cash sales • bankcard sales $ $

  29. Section 3 Analyzing Cash Receipt Transactions (con’t.) Chapter 14 $ Cash Sales • The business receives full payment for merchandise sold at the time of the sale. • Most retailers use a cash register to record cash sales. Cash Sales $ $ $ Sales Tax

  30. Section 3 Analyzing Cash Receipt Transactions (con’t.) Chapter 14 $ Cash from Charge Customers • Businesses record cash received on account from charge customers by preparing receipts. • Receipts are pre-numbered and may be prepared in multiple copies. • The receipt is a source document for the journal entry. $ $ $

  31. Section 3 Analyzing Cash Receipt Transactions (con’t.) Chapter 14 $ Bankcard Sales • A bankcard is issued by a bank and honored by many businesses. • Bankcard sales are recorded as though they are cash sales. $ Bankcard Sales $ $ Sales Tax

  32. Section 3 Analyzing Cash Receipt Transactions (con’t.) Chapter 14 $ Cash Discounts • A cash discount, or sales discount, is the amount a customer can deduct from the amount owed for purchased merchandise if payment is made within a certain time. • Terms 2/10, n/30 means that the customer can deduct 2% of the cost of merchandise if payment is made within 10 days of the sale date. $ $ $

  33. Section 3 Analyzing Cash Receipt Transactions (con’t.) Chapter 14 $ Cash Discount Transactions On December 3 On Your Mark sold $1,500 worth of merchandise on account to South Branch High School Athletics. If South Branch pays within 10 days (by December 13), On Your Mark will receive $1,470, or the original price less the cash discount of $30. $ $ $

  34. Section 3 Analyzing Cash Receipt Transactions (con’t.) Chapter 14 $ Cash Discount Transactions (con’t.) 1.Merchandise Discount Sold X Rate = Discount $ $1,500 X .02 = $30 $ 2. Amount Paid Within Sales Slip Discount Discount Amount – Amount = Period $ $1,500 – $30 = $1,470

  35. Section 3 Analyzing Cash Receipt Transactions (con’t.) Chapter 14 $ Recording Cash Received from Charge Customers Business Transaction $ On December 5 On Your Mark received $212 from Casey Klein to apply to her account, Receipt 301. $ $ ANALYSISIdentify 1. The accounts affected are Cash in Bank, Accounts Receivable (controlling), Accounts Receivable—Casey Klein (subsidiary).

  36. Section 3 Analyzing Cash Receipt Transactions (con’t.) Chapter 14 $ Recording Cash Received from Charge Customers (con’t.) $ Business Transaction (con’t.) On December 5 On Your Mark received $212 from Casey Klein to apply to her account, Receipt 301. $ ANALYSISClassify 2. Cash in Bank, Accounts Receivable (controlling) and Accounts Receivable—Casey Klein (subsidiary) are asset accounts. $

  37. Section 3 Analyzing Cash Receipt Transactions (con’t.) Chapter 14 $ Recording Cash Received from Charge Customers (con’t.) $ Business Transaction (con’t.) On December 5 On Your Mark received $212 from Casey Klein to apply to her account, Receipt 301. $ ANALYSIS+ / – 3. Cash in Bank is increased by $212. Accounts Receivable (controlling) and Accounts Receivable—Casey Klein (subsidiary) are decreased by $212. $

  38. Section 3 Analyzing Cash Receipt Transactions (con’t.) Chapter 14 $ Recording Cash Received from Charge Customers (con’t.) $ Business Transaction (con’t.) On December 5 On Your Mark received $212 from Casey Klein to apply to her account, Receipt 301. $ DEBIT-CREDIT RULE 4. Increases to asset accounts are recorded as debits. Debit Cash in Bank for $212. 5. Decreases to asset accounts are recorded as credits. Credit Accounts Receivable (controlling) for $212. Also credit Accounts Receivable—Casey Klein (subsidiary) for $212. $

  39. Section 3 Analyzing Cash Receipt Transactions (con’t.) Chapter 14 $ Recording Cash Received from Charge Customers (con’t.) Business Transaction (con’t.) $ On December 5 On Your Mark received $212 from Casey Klein to apply to her account, Receipt 301. T ACCOUNTS 6. Cash in Accounts Bank Receivable $ Debit + 212 Credit – Debit + Credit – 212 $ Accounts Receivable Subsidiary Ledger Casey Klein Debit + Credit – 212

  40. Section 3 Analyzing Cash Receipt Transactions (con’t.) Chapter 14 $ Recording Cash Received from Charge Customers (con’t.) $ Business Transaction (con’t.) On December 5 On Your Mark received $212 from Casey Klein to apply to her account, Receipt 301. $ JOURNAL ENTRY 7. $

  41. Section 3 Analyzing Cash Receipt Transactions (con’t.) Chapter 14 $ Check Your Understanding $ Explain the benefits of a cash discount. $ $

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