University:
College
Course:
College Accounting
Academic year:

2019
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179

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52
Author:

5CelestialChronicle

College Accounting Chapter 7 Accounting for Sales, Accounts Receivable, and Cash Receipts Learning Objectives (1 of 2) SECTION 1: Understanding Merchandising Companies 7-1 Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Learning Objectives (2 of 2) SECTION 2: Special Topics in Merchandising 7-2 Compute trade discounts. 7-3 Compute and record cash discounts on sales. 7-4 Post from the general journal to the general ledger accounts and to the subsidiary ledger. 7-5 Prepare a schedule of accounts receivable. 7-6 Record the payment of sales taxes. 7-7 Define the accounting terms new to this chapter. Section 1 Meet Maxx-Out Sporting Goods • Maxx-Out Sporting Goods is a merchandising business that sells the latest sporting goods and sportswear for men, women, and children. • It is a retail business. • Max Ferraro is the sole proprietor of the firm. The Maxx-Out Sporting Goods will sell goods that it purchases from its suppliers and will keep track of its available-for-sale stock in an account called Merchandise Inventory. Section 1 Accounts of a Merchandising Companies Name of Accounts Type of Account Normal Balance Used to Record Sales Revenue CR Sales of merchandise inventory Sales Tax Payable Liability CA Sales tax charged to customers Sales Discounts Contra revenue DR Early payment discounts given to buyer by seller Sales Returns and Allowances Contra revenue DR Products returned by buyer on the seller's backs DR Fees charged by credit card companies to seller Credit Card Expense Expense Section 1: Understanding Merchandising Companies Learning Objective 7-1: Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Section 1, Objective 7-1: Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Recording Sales for Cash and On Account (1 of 3) The journal entry to record a sale of $500 for cash on January 2 Section 1, Objective 7-1: Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Recording Sales for Cash and On Account (2 of 3) On January 3, Maxx-Out Sporting Goods sold merchandise on credit to Roy Anderson, issuing Sales Slip 1101 for $400. The journal entry to record the sale appears below. Section 1, Objective 7-1: Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Recording Sales for Cash and On Account (3 of 3) The journal entry records Roy Anderson’s payment of the amount due on January 31. Section 1, Objective 7-1: Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Recording Sales with Sales Tax Payable for Cash and On Account (1 of 3) • The journal entry to record a sale of $500 plus tax for cash follows. • A liability account called Sales Tax Payable is credited for the sales tax charged. Section 1, Objective 7-1: Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Recording Sales with Sales Tax Payable for Cash and On Account (2 of 3) The journal entry to record the sale of merchandise on credit. Section 1, Objective 7-1: Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Recording Sales with Sales Tax Payable for Cash and On Account (3 of 3) The Sales Slip tells us who the customer is and the sales amount, the sales tax charged and the total amount that the customer must pay. Section 1, Objective 7-1: Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Recording Sales Returns and Sales Allowances (1 of 3) • If something is wrong with the goods sold, the firm may – take a sales return, or – give a sales allowance. • A cash refund is given in the case of a cash sale • A credit memorandum is given in the case of a credit sale Section 1, Objective 7-1: Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Recording Sales Returns and Sales Allowances (2 of 3) The Sales Returns and Allowances account is debited to record returns and allowances. Section 1, Objective 7-1: Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Recording Sales Returns and Sales Allowances (3 of 3) • The Sales Returns and Allowances account is a contra-revenue account that keeps track of all customer returns. • A contra revenue account is an account with a debit balance, which is contrary to the normal balance for a revenue account. Section 1, Objective 7-1: Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Cash Refunds The journal entry to record a cash refund for a return of $100 in merchandise sold for cash, plus sales tax of $8, can be seen below: Section 1, Objective 7-1: Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Credit Memorandum Here is an example of a sales allowance which is granted to Ann Anh. Section 1, Objective 7-1: Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Sales Allowance Section 1, Objective 7-1: Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Credit Sales (1 of 2) Advantages of Credit Sales The volume of both sales and profits will increase, if buyers are given a period of a month or more to pay for the goods or services they purchase. Section 1, Objective 7-1: Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Credit Sales (2 of 2) Disadvantages of Credit Sales • Sales on credit will lead to increases in profit only if each customer completes the transaction by paying for the goods or services purchased. • If payment is not received, the expected profits become actual losses and the purpose for granting the credit is defeated. • Therefore businesses need to closely analyze a customer’s ability to pay before granting credit. Section 1, Objective 7-1: Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Credit Policies Each business must develop well-balanced credit policies: • Credit policy that is too tight may result in both lower bad debt losses and reduced sales. • Credit policy that is too lenient may result in both higher bad debt losses and increased sales. Section 1, Objective 7-1: Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Types of Credit Sales • Open-account credit • Business credit cards • Bank credit cards • Cards issued by credit card companies Section 1, Objective 7-1: Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Open-Account Credit Open-account credit sales and business credit card sales are accounted for as sales on credit. Section 1, Objective 7-1: Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Accounting for Credit Card Sales (1 of 3) • Sales made to customers using bank credit cards, such as MasterCard and VISA are treated as cash sales. • The processing fees charged by the credit card company are debited to the Credit Card Expense account. Section 1, Objective 7-1: Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Accounting for Credit Card Sales (2 of 3) Maxx-Out Sporting Goods sells merchandise on January 15 totaling $900 to customers using bank credit cards, plus 8 percent sales tax. The bank credit card company charges a 3 percent discount fee. Section 1, Objective 7-1: Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Accounting for Credit Card Sales (3 of 3) Merchandise sale Plus sales tax ($900.00 * 8%) $ 900.00 72.00 $ 972.00 Less: bank fee ($972.00 * 3%) Debit to Cash -29.16 $ 942.84 Let’s look at the journal entry on the next slide…. Section 1, Objective 7-1: Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Credit Card Transactions Journal entry to record the sales made to customers using bank credit cards on January 15. Section 1, Objective 7-1: Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Credit Card Companies (1 of 2) • Sales to customers using nonbank credit cards such as American Express and Diners Club are accounted for as sales on account. • Nonbank credit cards usually take a few days to pay the seller. • The amount remitted to the seller is net of the discount fee Section 1, Objective 7-1: Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. Credit Card Companies (2 of 2) This is an example of sales to customers using nonbank credit cards • Maxx-Out Sporting Goods sells merchandise on January 16 totaling $1,000 to customers paying with American Express, plus 8 percent sales tax. • American Express charges a 7 percent discount fee. • The discount withheld by American Express would be $75.60 ($1,080.00 X 7%) Section 1, Objective 7-1: Record sales on account, credit card sales, sales returns, sales allowances, and cash receipt transactions in a general journal. American Express Charges and Payments Journal entry to record the sales on January 16 and the subsequent payment on January 23 by American Express Section 2: Special Topics in Merchandising Learning Objective 7-2: Compute trade discounts. Section 2, Objective 7-2: Compute trade discounts. Computing Trade Discounts The basic procedures used by wholesalers to handle sales and accounts receivable are the same as those used by retailers. However, many wholesalers offer: • Cash discounts (For customers that pay within a certain period) • *Trade discounts (A reduction from the list price) *The amount of the trade discount may depend on the size of the order and the costs of selling to the various types of customers. Section 3: Special Topics in Merchandising Learning Objective 7-3: Compute and record cash discounts on sales. Section 2, Objective 7-3: Compute and record cash discounts on sales. Computing and Recording Cash Discounts on Sales Modern Sportsman, a wholesaler, offers credit terms of 1/10,n/30 to its customer, Maxx-Out Sporting Goods. Here are the journal entries to record the sale and subsequent payment received from Maxx-Out. Section 2, Objective 7-3: Compute and record cash discounts on sales. Cash Discounts on Sales, with Sales Returns A customer returning merchandise and paying within the discount period is only entitled to a cash discount on the balance owed after the return. Original sale $1,000.00 Less return 100.00 Balance 900.00 Less 1% discount ($900.00 x 1%) Amount received 9.00 $ 891.00 Section 2, Objective 7-3: Compute and record cash discounts on sales. Reporting Net Sales (1 of 2) At the end of each accounting period, the balance of the Sales Returns and Allowances account and the Sales Discount account is subtracted from the balance of the Sales account in the Revenue section of the income statement. Section 2, Objective 7-3: Compute and record cash discounts on sales. Reporting Net Sales (2 of 2) Section 4: Special Topics in Merchandising Learning Objective 7-4: Post from the general journal to the general ledger accounts and to the subsidiary ledger. Section 2, Objective 7-4: Post from the general journal to the general ledger accounts and to the subsidiary ledger. The Accounts Receivable Ledger (1 of 2) Section 2, Objective 7-4: Post from the general journal to the general ledger accounts and to the subsidiary ledger. The Accounts Receivable Ledger (2 of 2) • The accounts receivable ledger has three money columns. • The BALANCE column is presumed to contain debit amounts. Section 2, Objective 7-4: Post from the general journal to the general ledger accounts and to the subsidiary ledger. Posting from the General Journal (1 of 2) 111 indicates that the amount was posted to the Accounts Receivable account in the general ledger. The check mark indicates that the amount was posted to the customer’s account Section 2, Objective 7-4: Post from the general journal to the general ledger accounts and to the subsidiary ledger. Posting from the General Journal (2 of 2) Section 5: Special Topics in Merchandising Learning Objective 7-5: Prepare a schedule of accounts receivable. Section 2, Objective 7-5: Prepare a schedule of accounts receivable. Prepare a Schedule of Accounts Receivable (1 of 5) • The use of an accounts receivable ledger does not eliminate the need for the Accounts Receivable account in the general ledger. • However, the Accounts Receivable account (in the General Ledger) is now considered a control account. Section 2, Objective 7-5: Prepare a schedule of accounts receivable. Prepare a Schedule of Accounts Receivable (2 of 5) • At the end of each month, after all the postings have been made, the balances in the accounts receivable ledger must be proved against the balance of the Accounts Receivable general ledger account. TOTAL OF INDIVIDUAL CUSTOMER BALANCES = ACCOUNTS RECEIVABLE BALANCE Section 2, Objective 7-5: Prepare a schedule of accounts receivable. Prepare a Schedule of Accounts Receivable (3 of 5) Section 2, Objective 7-5: Prepare a schedule of accounts receivable. Prepare a Schedule of Accounts Receivable (4 of 5) The figure illustrates the relationship between the Accounts Receivable balance, the Accounts Receivable ledger, and the Schedule of Accounts Receivable Section 2, Objective 7-5: Prepare a schedule of accounts receivable. Prepare a Schedule of Accounts Receivable (5 of 5) Section 6: Special Topics in Merchandising Learning Objective 7-6: Record the payment of sales taxes. Section 2, Objective 7-6: Record the payment of sales taxes. Record the Payment of Sales Taxes (1 of 3) At the end of each month, after all the accounts have been posted, Maxx-Out Sporting Goods prepares the sales tax return. Three accounts are involved: • Sales Tax Payable • Sales • Sales Returns and Allowances Section 2, Objective 7-6: Record the payment of sales taxes. Record the Payment of Sales Taxes (2 of 3) Section 2, Objective 7-6: Record the payment of sales taxes. Record the Payment of Sales Taxes (3 of 3) Sales Tax Computation Taxable Gross Sales for January 8% Sales Tax Rate Sales Tax Due $ 25,000.00 x 0.08 $ 2,000.00