2Learning Objectives What you will learn: Why it’s important: How to record the sales of merchandise on accountHow to use the accounts receivable subsidiary ledgerHow to post to the accounts receivable subsidiary ledgerThe use of the sales tax payable account, and its debit and credit rulesThe use of the sales returns and allowances account and its debit and credit rulesWhy it’s important:It is essential to record sales transactions correctly as they reflect the revenue of a business.
3Analyzing Sales Transactions Each sales transaction is recorded so that at the end of the day the store can report sales by each categoryCashCredit cardsBank cardTotal sales
4Analyzing Sales Transactions Sale on accountSale of merchandise that will be paid for at a later date, charge sale or a credit saleCharge customer
5Sales Slip Sales slip form that lists the details of a sale The date of the saleThe name of the customerThe description, quantity, and price of an item soldUsually prepared in multiple copies.Pre-numbered sales slips help businesses keep track of all sales made on account
7Sales TaxMost states and some cities tax the retail sale of goods and services sales taxVary from state to stateStated as a percentage of a salePaid by the customer and collected by the businessBusiness acts as the collection agent for the state or city governmentBusiness adds the price of tax to the price of the itemPeriodically the business sends the collected sales tax to the stateBecomes a liability until it is paid by the business
8Sales TaxBusiness keeps a record of the sales tax owned to the state in a liability account Sales Tax PayableSales Tax PayableDebit–Decrease SideCredit+Increase SideNormal Balance
9Calculating Sales Tax Calculating Sales Tax Multiply the total selling price by the sales tax rateExample:Casey Klein bought $200 worth of merchandise. The sales tax is 6%200 X .06 = $12= $212 total transaction amount
10Credit Terms Credit terms states the time allowed for a payment Space is provided on the sales slip to indicate the credit termn/30N = net (or total amount of the sale)30 = number of days the customer has to pay for the merchandise Example: 30 daysn/30 full amount is due in 30 days
11Credit termsn/30 payment is due on December 31st (30 days past December 1stDate of saleCredit term
12The accounts receivable ledger Separate ledger that contains an account for each charge customerSubsidiary ledger ledger or book that contains detailed data summarized to a controlling account in the general ledgerDetails of the individuals and business that owe money to a companySame debit and credit rules applyControlling account balance equals the total of all the account balances in the subsidiary ledgerAccounts receivable is a controlling accountServes as a control on the accuracy of the balances in the accounts receivable subsidiary ledger after all posting is complete
13Accounts receivable ledger General LedgerAccounts Receivable—controlling account $10,000Accounts Receivable Subsidiary LedgerIndividual Accounts Within Ledger:Brown, Joshua $2,000Clark, Gillian 3,000Greene, Jason 1,000Perez, Sarita 4,000Total $10,000Controlling account balance equals total of accounts in subsidiary ledger.
15Accounts receivable subsidiary ledger form Lines on the top for the name and address of the customerArranged in alphabetical orderNot usually numbered3 amount columnsDebit and credit columns are used to show increases and decreasesOne balance column—asset account—normal balance is debit
16Recording sales on account Business TransactionANALYSIS Identify 1. The accounts affected are Accounts Receivable (controlling), Accounts Receivable—Casey Klein (subsidiary), Sales, and Sales Tax Payable.On December 1, On Your Mark sold merchandise on account to Casey Klein for $200 plus sales tax of $12, Sales Slip 50.
17Recording sales on account Business Transaction (cont'd.)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.On December 1, On Your Mark sold merchandise on account to Casey Klein for $200 plus sales tax of $12, Sales Slip 50.
18Recording sales on account Business Transaction (cont'd.)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.On December 1, On Your Mark sold merchandise on account to Casey Klein for $200 plus sales tax of $12, Sales Slip 50.
19Recording sales on account Business Transaction (cont'd.)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.
20Recording sales on account Business Transaction (cont'd.)On December 1, On Your Mark sold merchandise on account to Casey Klein for $200 plus sales tax of $12, Sales Slip 50.Debit+212Credit200–Accounts ReceivableSubsidiary Ledger Sales Tax Casey Klein Payable12
21Recording sales on account Business Transaction (cont'd.)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.Accts. Rec/Casey Klein=Two accountsare affected
22Recording sales on account When merchandise is sold to a tax-exempt organization, such as school districts, sales tax is not charged202013Dec3Accts. Rec./So. Branch High SchoolSalesSales slip 51
23Sales returns and allowances All merchandising businesses expect that some customers will be dissatisfied with their purchasesAny merchandise returned for credit or a cash refund is called a sales returnSometimes a customer discovers that merchandise is damaged or defective but still usableMerchants may reduce the sales price for the damaged merchandisePrice reduction granted for damaged goods kept by the customer sales allowance
24Sales returns and allowances If the sales return or allowance occurs on a charge sale, the business prepares a credit memorandumLists the details of a sales return or allowancecharge customer’s account is credited (decreased) for the amount of the return or allowanceIncludes spaces for the date and sales slip number of the original saleIncludes sales tax charged on the original saleSame form used if it’s a sales allowanceCredit memos are pre-numbered and prepared in duplicates
26Sales returns and allowances account Decrease the total revenue earned by a businessNOT RECORDED IN THE SALES ACCOUNTRecorded in the Sales Returns & AllowancesSummarizes the total returns and allowances for damaged, defective, or otherwise unsatisfactory merchandiseCarefully analyzed to detect troubleCONTRA ACCOUNT balance decreases the balance of its related account (Revenue or Sales)Sales Returns and AllowancesDebit+Increase SideNormal BalanceCredit–Decrease Side
27Sales returns & Allowances Business TransactionOn December 4, OnYour Mark issuedCredit Memorandum 124to Gabriel Ramos for thereturn of merchandisepurchased on account,$150 plus $9 sales tax.JOURNAL ENTRY 7.
28Contra account Contra Account Decreases the balance of its related account.The normal balance side of any contra account is always the opposite of the normal balance side of its related account
29Cash refundSometimes a merchant will give a customer a cash refund instead of a creditIn the book examples: only give a cash refund if the original sale was a cash saleFor cash refunds:Cash in bank is credited instead of Accounts Receivable
30Posting to the accounts receivable subsidiary ledger Don’t forget about: Accts. Rec./Gabriel RamosIndicates that both Accounts Receivable and Gabriel Ramos are affectedAlso put a slash in the post reference columnThis indicates that the amount is posted in two separate accountsAfter it is posted in the Accts Receivable ledger post the account numberAfter it is posted the subsidiary ledger place a check mark to the right of the slashLOOK ON PAGE 365 FOR AN EXAMPLE