1. © 2014 Cengage Learning. All Rights Reserved. Vocab Test Prep. Make it your personal goal to understand the accounting concepts. Make learning accounting a process of logical discovery and thoughtful exploration. The more you think about accounting concepts, the easier it will become to do well. Chapter 11 Vocab Test Review Chapter 11 Vocab Test Review

2. © 2014 Cengage Learning. All Rights Reserved. Journals ●A journal with two amount columns in which all kinds of entries can be recorded is called a general journal. ●Not every transaction can be recorded in a special journal. ●Transactions that cannot be recorded in a special journal: ●Purchase of supplies on account ●Returning merchandise to a Vendor ●Accepting a return of merchandise that was sold to a customer ●Making correcting entries to fix errors ●These entries, and ones similar that cannot be recorded in a special journal need to be journalized in a General Journal. SLIDE 2 Lesson 11-1

3. © 2014 Cengage Learning. All Rights Reserved. Memorandum for Buying Supplies on Account SLIDE 3 Lesson 11-1 Using a memorandum as the source document makes it clear that this is a purchase of supplies on account—instead of merchandise. It is also a reminder to journalize this purchase in the general journal.

4. © 2014 Cengage Learning. All Rights Reserved. Buying Supplies on Account SLIDE 4 December 2. Bought store supplies on account from Estes Supply, $165.25. Memorandum No. 42. Lesson 11-1 Supplies—Store 165.25 Accounts Payable 165.25 Accounts affected: Debit to Supplies—Store, and a credit to Accounts Payable AND Estes Supply (The vendor’s accounts payable account.) Note: Did you notice that debit is an increase and the credit is an increase: both accounts are increasing in this General Journal entry?

5. © 2014 Cengage Learning. All Rights Reserved. Purchases Returns and Allowances: Normal Credit Balance because it is a Contra account for Purchases ●Purchases Return: Credit allowed for returned merchandise to the vendor, resulting in a decrease in the customer’s account payable to the vendor (You returned merchandise to the vendor.) ●Purchases Allowance: Credit allowed for part of the purchase price of merchandise that is not returned to the vendor, resulting in a decrease in the customer’s account payable to the vendor. (Merchandise is damaged and cannot be sold for full price.) ●Both returns and purchase allowances are recorded as credits to the Purchases Returns and Allowances account SLIDE 5

6. © 2014 Cengage Learning. All Rights Reserved. Source Document for Purchases Returns and Allowances SLIDE 6 Lesson 11-1 You will debit Accounts Payable and Credit Purchases Returns and Allowances. Debit Memorandum: A form prepared by your business showing the price deduction taken for a return or an allowance.

7. © 2014 Cengage Learning. All Rights Reserved. Journalizing Purchases Returns and Allowances (General Journal) SLIDE 7 Lesson 11-1 Remember: An entry in the general journal that affects Accounts Payable will also affect the vendor’s account in the Accounts Payable Ledger. You will be posting the $43.90 debit to two accounts. Note: A debit memorandum results in a debit to the AP Account

8. © 2014 Cengage Learning. All Rights Reserved. Posting from a General Journal to a General Ledger SLIDE 8 Lesson 11-1 Remember: A completed journal page should be reviewed by checking the posting reference column to verify that all postings have been made.

9. © 2014 Cengage Learning. All Rights Reserved. Sales Returns and Allowances ●Sales Return: Credit allowed to a customer for the sales price of returned merchandise, resulting in a decrease in the accounts receivable account. ●Sales Allowance: Credit allowed to a customer for part of the sales price of merchandise that is not returned, resulting in a decrease in the accounts receivable of the merchandising business. ●(Example: Customer reported damaged merchandise that they won’t be able to sell at the normal price.) SLIDE 9 Lesson 11-2

10. © 2014 Cengage Learning. All Rights Reserved. Source Document for Sales Returns and Allowances SLIDE 10 Lesson 11-2 A form prepared by the vendor showing the amount deducted for sales returns and allowances is called a credit memorandum. (You will credit the accounts receivable account.)

11. © 2014 Cengage Learning. All Rights Reserved. Journalizing Sales Returns and Allowances: (Note: Must be recorded in the General Journal) SLIDE 11 Lesson 11-2 December 16. Granted credit to Lake Automotive for merchandise returned, $65.85, plus sales tax, $3.95, from S500; total, $69.80. Credit Memorandum No. 14. Sales Returns and Allowances 65.85 Sales Tax Payable 3.95 Accounts Receivable 69.80 Remember: Sales Returns and Allowances is a contra account to Sales. Consequently, the normal balance side is just the opposite of Sales, so it is a debit. Note: A credit memorandum requires recording a credit to the customer’s account.

12. © 2014 Cengage Learning. All Rights Reserved. Posting from a General Journal to an Accounts Receivable Ledger SLIDE 12 Lesson 11-2 1 1 Date Customer Number Credit Entries in the General Journal affect account balances in the general ledger and a subsidiary ledger too.

13. © 2014 Cengage Learning. All Rights Reserved. Accounts Receivable Account did not need to be corrected. Only the customer accounts in the subsidiary ledger were incorrect. SLIDE 13 Lesson 11-2 December 26. Found that a sale on account to Skinner College was incorrectly charged to the account of Wells Apartments, $334.00. Memorandum No. 44. Correcting Errors in Subsidiary Ledger Accounts -- Incorrect account was charged

14. © 2014 Cengage Learning. All Rights Reserved. Stockholders’ Equity Accounts Used by a Corporation SLIDE 14 Lesson 11-3 (3000)STOCKHOLDERS’ EQUITY NORMAL BALANCE SIDE 3110Capital StockCredit 3120Paid-In Capital in Excess of Par Credit 3130Retained EarningsCredit 3140DividendsDebit (Like Drawing) 3150Income SummaryNeither

15. © 2014 Cengage Learning. All Rights Reserved. Stockholders’ Equity Accounts Used by a Corporation ●An amount earned by a corporation and not yet distributed to stockholders is called retained earnings. (Similar to Capital—Normal Credit balance) ●Net Income increases the corporation’s total stockholders’ equity. ●Earnings distributed to stockholders are called dividends. ●(Dividends is a temporary account that is Similar to Drawing—Normal Debit balance) ●At the end of the fiscal period, the Dividends account is closed to Retained Earnings. (Similar to Drawing, which was closed to Capital Account last semester.) SLIDE 15 Lesson 11-3

16. © 2014 Cengage Learning. All Rights Reserved. Dividends ●Board of Directors: A group of persons elected by the stockholders to govern a corporation. (They are elected like school board members are elected.) ●Declaring a Dividend: Action by a board of directors to distribute corporate earnings to stockholders. ●Note: A corporation’s board has to decide if and when to declare a dividend. SLIDE 16 Lesson 11-3

17. © 2014 Cengage Learning. All Rights Reserved. Declaring a Dividend SLIDE 17 Lesson 11-3 December 15. ThreeGreen’s board of directors declared a quarterly dividend of $0.05 per share; capital stock issued is 75,000 shares; total dividend, $3,750.00. Date of payment is January 15. Memorandum No. 43. Dividends 3,750.00 Dividends Payable 3,750.00 To calculate the amount of the dividend : Multiply dividend per share by number of shares issued :.05 * 75,000 = 3,750.00 Note Dates for declaration and actual payment: They need time to complete the paperwork and write the checks to shareholders.

18. © 2014 Cengage Learning. All Rights Reserved. January 15. Paid cash for quarterly dividend declared column. Paying Declared Dividends SLIDE 18 Lesson 11-3 Note: Dividends can be distributed to stockholders only by formal action of a corporation's board of directors. They have to have been “declared” first. At time of payment: Dividends Payable Debit and Cash Credit.

19. © 2014 Cengage Learning. All Rights Reserved. The End Verstehen?