Accounting for Sales and Cash ReceiptsAccounting for Sales and Cash Receipts
Making Accounting Relevant
Sales of products or services generate
revenue for a business.
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.
If you work at a retail business, what sales transaction have you participated in? Discuss the actions involved in the sale.
Section 1Accounting for a Merchandising Business
Section 1Accounting for a Merchandising BusinessWhat 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 Sales account, and its rules of debit and credit.
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 Sales account, and its rules of debit and credit.
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.
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.
Section 1 Accounting for a Merchandising Business (con’t.)
Section 1 Accounting for a Merchandising Business (con’t.)
Key Terms
retailer
wholesaler
merchandise
Key Terms
retailer
wholesaler
merchandise
inventory
sales
inventory
sales
The Operating Cycle of a Merchandising BusinessThe Operating Cycle of a Merchandising Business
Section 1 Accounting for a Merchandising Business (con’t.)
Section 1 Accounting for a Merchandising Business (con’t.)
Merchandise Inventory AccountMerchandise Inventory AccountGoods 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.
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.
Section 1 Accounting for a Merchandising Business (con’t.)
Section 1 Accounting for a Merchandising Business (con’t.)
Merchandise Inventory
Credit–
Decrease Side
Debit+
Increase SideNormal Balance
Sales AccountSales Account
When a retail merchandising
business sells goods to a customer,
the amount of the merchandise sold is
recorded in the Sales account.
When a retail merchandising
business sells goods to a customer,
the amount of the merchandise sold is
recorded in the Sales account.
Section 1 Accounting for a Merchandising Business (con’t.)
Section 1 Accounting for a Merchandising Business (con’t.)
Sales
Debit–
Decrease Side
Credit+
Increase SideNormal Balance
Check Your UnderstandingCheck Your Understanding
What type of account is
Merchandise Inventory?
What type of account is
Merchandise Inventory?
Section 1 Accounting for a Merchandising Business (con’t.)
Section 1 Accounting for a Merchandising Business (con’t.)
Section 2Analyzing Sales Transactions
Section 2Analyzing Sales TransactionsWhat 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.
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.
Why It’s ImportantIt is essential to record sales
transactions correctly as they reflect the revenue of the business.
Why It’s ImportantIt is essential to record sales
transactions correctly as they reflect the revenue of the business.
Section 2 Analyzing Sales Transactions (con’t.)Section 2 Analyzing Sales Transactions (con’t.)
Key Terms sale on account charge customer credit cards sales slip sales tax credit terms accounts receivable subsidiary ledger
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
subsidiary ledger controlling account sales return sales allowance credit memorandum contra account
The Sales SlipA sales slip lists the details of a sale:
The Sales SlipA 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.
The date of the sale.
The name of the customer.
The description, quantity, and price of the item(s) sold.
Section 2 Analyzing Sales Transactions (con’t.)Section 2 Analyzing Sales Transactions (con’t.)
Sales TaxSales TaxMost 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.
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
Debit–
Decrease Side
Credit+
Increase SideNormal Balance
Section 2 Analyzing Sales Transactions (con’t.)Section 2 Analyzing Sales Transactions (con’t.)
Credit TermsCredit 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.
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.
Section 2 Analyzing Sales Transactions (con’t.)Section 2 Analyzing Sales Transactions (con’t.)
The Accounts Receivable LedgerThe Accounts Receivable LedgerThe accounts receivable subsidiary
ledger contains an account for each charge customer.
The accounts receivable subsidiary ledger contains an account for each charge customer.
Section 2 Analyzing Sales Transactions (con’t.)Section 2 Analyzing Sales Transactions (con’t.)
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
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.
Controlling account balance equals total of accounts in subsidiary ledger.
The Accounts Receivable Subsidiary Ledger FormThe Accounts Receivable Subsidiary Ledger Form
The subsidiary ledger account form
has lines at the top for the name and
address of the customer.
The subsidiary ledger account form
has lines at the top for the name and
address of the customer.
Section 2 Analyzing Sales Transactions (con’t.)Section 2 Analyzing Sales Transactions (con’t.)
Business Transaction
ANALYSIS Identify 1. The accounts affected are Accounts Receivable (controlling), Accounts Receivable—Casey Klein (subsidiary), Sales, and Sales Tax Payable.
Section 2 Analyzing Sales Transactions (con’t.)Section 2 Analyzing Sales Transactions (con’t.)
Recording Sales on AccountRecording Sales on Account
On December 1 On Your Mark sold merchandise on account to Casey Klein for $200 plus sales tax of $12, Sales Slip 50.
Business Transaction (con’t.)
ANALYSIS Classify 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.
Section 2 Analyzing Sales Transactions (con’t.)Section 2 Analyzing Sales Transactions (con’t.)
Recording Sales on Account (con’t.)Recording Sales on Account (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.
Business Transaction (con’t.)
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.
Section 2 Analyzing Sales Transactions (con’t.)Section 2 Analyzing Sales Transactions (con’t.)
Recording Sales on Account (con’t.)Recording Sales on Account (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.
Business Transaction (con’t.)
Section 2 Analyzing Sales Transactions (con’t.)Section 2 Analyzing Sales Transactions (con’t.)
Recording Sales on Account (con’t.)Recording Sales on Account (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.
T ACCOUNTS 6.Accounts Receivable Sales
Section 2 Analyzing Sales Transactions (con’t.)Section 2 Analyzing Sales Transactions (con’t.)
Recording Sales on Account (con’t.)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+
212
Credit+
200
Credit–
Debit–
Accounts ReceivableSubsidiary Ledger Sales Tax
Casey Klein Payable
Debit+
212
Credit–
Debit–
Credit+
200
Business Transaction (con’t.)
Section 2 Analyzing Sales Transactions (con’t.)Section 2 Analyzing Sales Transactions (con’t.)
Recording Sales on Account (con’t.)Recording Sales on Account (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.
Sales Returns and AllowancesSales 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.
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.
Section 2 Analyzing Sales Transactions (con’t.)Section 2 Analyzing Sales Transactions (con’t.)
Sales Returns and Allowances (con’t.)Sales Returns and Allowances (con’t.)
A credit memorandum lists the details of a sales return or allowance.
A credit memorandum lists the details of a sales return or allowance.
Section 2 Analyzing Sales Transactions (con’t.)Section 2 Analyzing Sales Transactions (con’t.)
The Sales Returns and Allowances AccountThe 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.
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
Debit+
Increase SideNormal Balance
Credit–
Decrease Side
Section 2 Analyzing Sales Transactions (con’t.)Section 2 Analyzing Sales Transactions (con’t.)
Business Transaction
Section 2 Analyzing Sales Transactions (con’t.)Section 2 Analyzing Sales Transactions (con’t.)
On December 4 OnYour Mark issued Credit Memorandum 124 to Gabriel Ramos for the return of merchandise purchased on account, $150 plus $9 sales tax.
JOURNAL ENTRY 7.
The Sales Returns and Allowances AccountThe Sales Returns and Allowances Account
Check Your UnderstandingCheck Your Understanding
Businesses collect sales tax
from customers. In what account is
the sales tax recorded?
Businesses collect sales tax
from customers. In what account is
the sales tax recorded?
Section 2 Analyzing Sales Transactions (con’t.)Section 2 Analyzing Sales Transactions (con’t.)
Section 3Analyzing Cash Receipt Transactions
Section 3Analyzing Cash Receipt TransactionsWhat You’ll Learn
How to record cash receipt
transactions.
The use of the Sales Discounts
account, and its rules of debit and
credit.
What You’ll Learn
How to record cash receipt
transactions.
The use of the Sales Discounts
account, and its rules of debit and
credit.
Why It’s Important
It is essential to understand the
various ways that businesses receive
cash and how to record the receipt of
cash.
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
Key Terms cash receipt
cash sale
bankcard
Section 3 Analyzing Cash Receipt Transactions (con’t.)
Section 3 Analyzing Cash Receipt Transactions (con’t.)
cash discount
sales discount
cash discount
sales discount
Kinds of Cash ReceiptsKinds of Cash Receipts
payments from charge customers
cash sales
bankcard sales
payments from charge customers
cash sales
bankcard sales
Section 3 Analyzing Cash Receipt Transactions (con’t.)
Section 3 Analyzing Cash Receipt Transactions (con’t.)
Cash SalesCash 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.
The business
receives full
payment for
merchandise sold
at the time of the
sale.
Most retailers use
a cash register to
record cash sales.
Section 3 Analyzing Cash Receipt Transactions (con’t.)
Section 3 Analyzing Cash Receipt Transactions (con’t.)
Cash Sales
Sales Tax
Cash from Charge CustomersCash 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.
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.
Section 3 Analyzing Cash Receipt Transactions (con’t.)
Section 3 Analyzing Cash Receipt Transactions (con’t.)
Bankcard SalesBankcard Sales
A bankcard is
issued by a bank
and honored by
many businesses.
Bankcard sales
are recorded as
though they are
cash sales.
A bankcard is
issued by a bank
and honored by
many businesses.
Bankcard sales
are recorded as
though they are
cash sales.
Section 3 Analyzing Cash Receipt Transactions (con’t.)
Section 3 Analyzing Cash Receipt Transactions (con’t.)
Bankcard Sales
Sales Tax
Cash DiscountsCash 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.
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.
Section 3 Analyzing Cash Receipt Transactions (con’t.)
Section 3 Analyzing Cash Receipt Transactions (con’t.)
Cash Discount TransactionsCash 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.
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.
Section 3 Analyzing Cash Receipt Transactions (con’t.)
Section 3 Analyzing Cash Receipt Transactions (con’t.)
Cash Discount Transactions (con’t.)Cash Discount Transactions (con’t.)
1. Merchandise DiscountSold X Rate = Discount
1. Merchandise DiscountSold X Rate = Discount
Section 3 Analyzing Cash Receipt Transactions (con’t.)
Section 3 Analyzing Cash Receipt Transactions (con’t.)
2. Amount PaidWithin
Sales Slip Discount DiscountAmount – Amount = Period
2. Amount PaidWithin
Sales Slip Discount DiscountAmount – Amount = Period
$1,500 X .02 = $30$1,500 X .02 = $30
$1,500 – $30 = $1,470$1,500 – $30 = $1,470
Business Transaction
ANALYSIS Identify 1. The accounts affected are Cash in Bank, Accounts Receivable (controlling), Accounts Receivable—Casey Klein (subsidiary).
On December 5 On Your Mark received $212 from Casey Klein to apply to her account, Receipt 301.
Recording Cash Received from Charge CustomersRecording Cash Received from Charge Customers
Section 3 Analyzing Cash Receipt Transactions (con’t.)
Section 3 Analyzing Cash Receipt Transactions (con’t.)
Business Transaction (con’t.)
ANALYSIS Classify 2. Cash in Bank, Accounts Receivable (controlling) and Accounts Receivable—Casey Klein (subsidiary) are asset accounts.
Section 3 Analyzing Cash Receipt Transactions (con’t.)
Section 3 Analyzing Cash Receipt Transactions (con’t.)
Recording Cash Received from Charge Customers (con’t.)
Recording Cash Received from Charge Customers (con’t.)
On December 5 On Your Mark received $212 from Casey Klein to apply to her account, Receipt 301.
Business Transaction (con’t.)
ANALYSIS + / – 3. Cash in Bank is increased by $212. Accounts Receivable (controlling) and Accounts Receivable—Casey Klein (subsidiary) are decreased by $212.
Section 3 Analyzing Cash Receipt Transactions (con’t.)
Section 3 Analyzing Cash Receipt Transactions (con’t.)
Recording Cash Received from Charge Customers (con’t.)
Recording Cash Received from Charge Customers (con’t.)
On December 5 On Your Mark received $212 from Casey Klein to apply to her account, Receipt 301.
Business Transaction (con’t.)
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.
Section 3 Analyzing Cash Receipt Transactions (con’t.)
Section 3 Analyzing Cash Receipt Transactions (con’t.)
Recording Cash Received from Charge Customers (con’t.)
Recording Cash Received from Charge Customers (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 AccountsBank Receivable
Business Transaction (con’t.)
Debit+
212
Credit–
212
Credit–
Accounts ReceivableSubsidiary Ledger
Casey Klein
Debit+
Credit–
212
Section 3 Analyzing Cash Receipt Transactions (con’t.)
Section 3 Analyzing Cash Receipt Transactions (con’t.)
Recording Cash Received from Charge Customers (con’t.)Recording Cash Received from Charge Customers (con’t.)
On December 5 On Your Mark received $212 from Casey Klein to apply to her account, Receipt 301.
Debit+
Business Transaction (con’t.)
JOURNAL ENTRY 7.
Section 3 Analyzing Cash Receipt Transactions (con’t.)
Section 3 Analyzing Cash Receipt Transactions (con’t.)
Recording Cash Received from Charge Customers (con’t.)
Recording Cash Received from Charge Customers (con’t.)
On December 5 On Your Mark received $212 from Casey Klein to apply to her account, Receipt 301.
Check Your UnderstandingCheck Your Understanding
Explain the benefits of a cash
discount.
Explain the benefits of a cash
discount.
Section 3 Analyzing Cash Receipt Transactions (con’t.)
Section 3 Analyzing Cash Receipt Transactions (con’t.)