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Understanding Journalizing Sales on Account and Related Transactions in Merchandising Business

This lesson explores the major activities of merchandising businesses, focusing on the purchase and sale of merchandise. It discusses key concepts such as sales on account, sales tax, and various special journals utilized for tracking these transactions. You'll learn about responsible parties in sales transactions, how sales tax is calculated and managed, and the impact of sales on account on financial statements. The importance of maintaining accurate records for accounts receivable and sales tax payable is also covered.

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Understanding Journalizing Sales on Account and Related Transactions in Merchandising Business

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  1. LESSON 10-1 Journalizing Sales on Account

  2. QUESTIONS: • Two main activities of a merchandising business? • Purchase of merchandise • Sale of merchandise • Person or business to whom merchandise is sold? • Customer

  3. HOBBY SHACK: Merchandising business State Government • When you purchase something, what is included on the price? • Item + tax = Total Price • Who collects tax amount? • Who is the tax given to? • Customers: • Individuals buying product – pay sales tax • Schools – tax exempt • Churches – tax exempt

  4. Sale on Account • Hobby Shack allows Sales on Account only to businesses • All others pay cash or use a credit card (like cash) LESSON 10-1

  5. SPECIAL JOURNALS • purchase merchandise on account • all cash payments • all sales of merchandise on account • all transactions where cash received • Transactions that don’t qualify for other 4 • Five Special Journals used by Hoppy Shack: • Purchases Journal – • Cash Payments Journal – • Sales Journal – • Cash Receipts Journal – • General Journal –

  6. SALES ON ACCOUNT • What accounts are impacted by Sales on Account? • Accounts Receivable (1130) • Is this an Asset, Liability, or Owner’s Equity? • Sales (4110) • Is this an Asset, Liability, or Owner’s Equity? • Temporary account closed to Owner’s Equity • What new Sales accounts appear on the Chart of Accounts? • Sales Discount • Sales Returns and Allowance • Sales Tax Payable – New Liability Account

  7. SALES TAX • Sales Tax: • A tax on the sale of merchandise or services • Stated as a percentage of sales • Paid by customer, collected by businesses • Businesses file reports and pay collected tax amount to gov’t • Requires separate records of total sales and total tax collected • Sales Tax Payable Account • Account used to track tax collected and paid • Amount of Sales Tax collected is owed to Government • A liability is something you owe (payable means will pay later) • What is the Normal Balance? • Credit = Amount you collected and owe - increases as a Credit • When you pay it to the government = decrease as a debit

  8. SALES JOURNAL • Three special columns • Track all Sales on Account • Sales invoice = source document • Gross sale + sales tax amount = invoice total • Sales invoice maintained by the seller • Purchase invoice given to the customer

  9. Calculating Sales Tax $48 $848 • Sales on Account = $800, tax is 6% • What is the sales tax amount? • What is the total sales/invoice amount?

  10. SALES INVOICE

  11. SALES OF MERCHANDISE ON ACCOUNT September 1. Sold merchandise on account to Village Crafts, $540.00, plus sales tax, $32.40; total, $572.40. Sales Invoice No. 103. Accts. Rec/Village Crafts Sales Tax Payable Sales • What accounts are impacted and how? • Accounts Receivable: increases as ? • Sales Tax Payable: increases as ? • Sales: increases as ?

  12. SALE ON ACCOUNT September 1. Sold merchandise on account to Village Crafts, $540.00, plus sales tax, $32.40; total, $572.40. Sales Invoice No. 103. Accts. Rec/Village Crafts 572.40 Sales Tax Payable 32.40 Sales 540.00

  13. TOTALING, PROVING, AND RULING A SALES JOURNAL Why do some sales not have Sales Tax? Prove and rule at the end of pages and months

  14. TERMS REVIEW • customer • sales tax • sales journal

  15. Work Together Work Together 10-1

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