1. Moving from “Sole
Proprietorships” to
“Merchandising
Corporations!!!”
Chapter 14:
Accounting for
Sales and Cash
Receipts
2. Essential Outcomes
14. Understands the relationship between
sales, cash sales and sales tax by
being able to:
a. Explain the difference between a service
business & a merchandising business.
b. Explain the difference between a retailer
& a wholesaler
c. Record a variety of sales and cash
receipt transactions in a general journal
d. Calculate sales tax, sales discount and
sales returns & allowances
e. Define the accounting terms in this
4. 1.
Purchase
merchandis
e for resale
2. Sale of
5. goods for
Profit cash or on
account
4. Pay expenses: 3. Collect
rent, utilities, cash from
salaries, etc.
accounts
Operating Cycle of
Merchandising business
5. New account for Merchandising
Business:
Merchandise Inventory:
Merchandise: goods bought for resale
Inventory: items of merchandise the business
has in stock
Merchandise Inventory Account: inventory is
represented in the General Ledger as an asset
Normal Balance: Debit
Items in the Merchandise Inventory account are
sold during the year and more items for resale are
purchased during the year
Merchandise Inventory ONLY USED when
recording adjusting entries
6. New account for Merchandising
Business:
Sales Account:
Used when a retail merchandising business
sells goods to a customer, the amount of the
merchandise sold is record in the “Sales”
account.
Normal balance: credit
7. Sales Transactions
Sale on account
Sale of merchandise that will be paid for at
a later date
• Charge customer:
Person to whom the sale on account is
made
• Credit Cards: issued by businesses so
customers can charge purchases
8. Sales Slip
Sales Slip:
date of sale
name of
customer
description,
quantity & price
of items sold
Pre-numbered
includes sales
tax
9. Added to the sale price of an item
Usually given as %, such as 7%, etc.
Paid by customer and collected by
business
Business required to periodically
send money to state
Account used: Sales Tax Payable
Normal balance: credit
State Sales Tax
10. Multiply the total sales by the
percent.
Example: total sales $510 and
sales tax is 7%
$510.00 x 7% (.07) = $35.70
$510.00 + $35.70 = $545.70 total
price
Calculating Sales
Tax
11. Credit Terms
Credit Terms: state the time allowed
for payment for customers who
purchased merchandise on account
Credit term is: n/30
“n” stands for net (or total amount of
the sale) & 30 stands for number of
days customer has to pay bill
13. Accounts Receivable Subsidiary Ledger
Businesses that have lots
of people charging on
account, set up “accounts
receivable subsidiary
ledger”
A/R subsidiary ledger has
account forms for “each”
customer who charges on
account
14. Accounts Receivable Subsidiary Ledger
A/R Subsidiary Ledger is book or ledger
that provides detailed information for
each client (not part of General Ledger)
In General Ledger, have Accounts
Receivable account that equals total of
all accounts in A/R subsidiary ledger
Accounts Receivable is a “controlling
account”—has a summary of all
information recorded in the A/R
Subsidiary Ledger
17. Accounts Receivable Subsidiary Ledger
On Dec 1, sold merchandise on
account to Casey Klein for $200 plus
sales tax of $12, Sales Slip 50
Slash means you will
post to two different
places….On top of slash
record account # and
18. Sales Returns & Allowance
Sales Returns: Customer returns
merchandise due to wrong size, wrong
color, defective, etc.—any merchandise
returned for credit or cash refund
called sales return.
Sales Allowance: customer finds
merchandise or damaged or defective,
but is still useable, seller may grant a
price reduction if customer willing to
keep merchandise—thus, this is called
a sales allowance
20. Sales Returns & Allowance Account
Reduces or decreases total revenue
earned by the business
Returns or allowances recorded in
Sales Return & Allowance account
Sales Returns & Allowances is
“contra account to Sales Account
Contra Account: means that its
balances decreases the contra
revenue account (this would be
Sales)
21. Sales Returns & Allowance Account
To record a return or an allowance
charged “on account”:
Sales Returns & Allowances $45.00
Sales Tax Payable 5.00
Accounts Receivable/Casey Klein
$50.00
Credit Memo 560
Usually only give cash refunds for
“cash sales” and not for “on account
23. Posting Accounts Receivable
You will be posting twice
1. Once to the General Ledger
Accounts Receivable account
2. Once to the Accounts
Receivable Subsidiary Ledger
under the specific customer’s
name
24. When Posting Account Receivables….
1. Do the following:
First, post as we have always
done—go to GL record info, come
back and on top of slash, record
A/R account number
Second, go to customer in A/R
Subsidiary Ledger, record info, go
back to GJ and place a check mark
below the slash.
26. Kinds of Cash Receipts
1. Cash receipt: a
transaction in
which money
comes in to a
business
2. Three most
common forms of
cash for a
merchandising
business are:
Payments from
charge
customers
Cash sales
27. Cash Sales
1. Business receives full payment at
time of sale
2. Cash registers record daily sales on
two tapes: one customer receives
and one is kept inside cash register
3. End of day, cash register totaled and
cleared
4. A proof is usually made to make sure
cash in register equals the cash
register tape
5. Tape used for proof becomes source
document for journal entry for cash
sales
28. Bankcard Sales
1. Bank cards issued by bank and
honored at many business
2. Bank card sales are separate from
Cash Sales
3. Bank card sales are included on the
Cash Register sales slip
4. Record separately from the Cash
Sales
29. Journal Entry for Cash Sales
& Bankcard Sales
1. Cash Sales journal entry:
Cash in Bank $3392.00
Sales
$3,200.00
Sales Tax Payable
192.00
2. Bank Card Sales journal entry:
Cash in Bank $2,650.00
Sales
$2,500.00
Sales Tax Payable
30. Cash/Sales Discounts
1. Cash discount or sales discount:
amount that a customer can deduct
from the total owed for paying early
2. Terms would look something like
this: 2/10, n/30
3. 2/10: Customer receives a 2% (.02)
discount if pay within 10 days
4. n/30: do not pay without 10 days,
have 30 days to pay full amount
31. Cash/Sales Discounts
1. Example: Total of bill is $1,250.00.
Sales/Cash Discount: 3/15, n/30
$1,250.00 x .03 = $37.50 sales/cash
discount
$1,250.00 - $37.50 = $1,212.50 Total
owed if pay within 15 days
Otherwise, must pay the full amount after
15 days.
32. Journal Entry
1. Cash in Bank $1,212.50
Sales Discount 37.50
A/R-Name of Company
$1,250.00
