LEARNING OBJECTIVES What you will learn: How to record the sales 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 debit and credit rules The use of the sales returns and allowances account and its debit and credit rules Why it’s important: It is essential to record sales transactions correctly as they reflect the revenue of a business.
ANALYZING SALES TRANSACTIONS Each sales transaction is recorded so that at the end of the day the store can report sales by each category Cash Credit cards Bank card Total sales
ANALYZING SALES TRANSACTIONS Sale on account Sale of merchandise that will be paid for at a later date, charge sale or a credit sale Charge customer Sale on account
SALES SLIP Sales slip form that lists the details of a sale The date of the sale The name of the customer The description, quantity, and price of an item sold Usually prepared in multiple copies. Pre-numbered sales slips help businesses keep track of all sales made on account
SALES TAX Most states and some cities tax the retail sale of goods and services sales tax Vary from state to state Stated as a percentage of a sale Paid by the customer and collected by the business Business acts as the collection agent for the state or city government Business adds the price of tax to the price of the item Periodically the business sends the collected sales tax to the state Becomes a liability until it is paid by the business
SALES TAX Business keeps a record of the sales tax owned to the state in a liability account Sales Tax Payable Sales Tax Payable Debit – Decrease Side Credit + Increase Side Normal Balance
CALCULATING SALES TAX Calculating Sales Tax Multiply the total selling price by the sales tax rate Example: Casey Klein bought $200 worth of merchandise. The sales tax is 6% 200 X.06 = $ = $212 total transaction amount
CREDIT TERMS Credit terms states the time allowed for a payment Space is provided on the sales slip to indicate the credit term n/30 N = net (or total amount of the sale) 30 = number of days the customer has to pay for the merchandise Example: 30 days n/30 full amount is due in 30 days
CREDIT TERMS n/30 payment is due on December 31 st (30 days past December 1 st Date of sale Credit term
THE ACCOUNTS RECEIVABLE LEDGER Separate ledger that contains an account for each charge customer Subsidiary ledger ledger or book that contains detailed data summarized to a controlling account in the general ledger Details of the individuals and business that owe money to a company Same debit and credit rules apply Controlling account balance equals the total of all the account balances in the subsidiary ledger Accounts receivable is a controlling account Serves as a control on the accuracy of the balances in the accounts receivable subsidiary ledger after all posting is complete
ACCOUNTS RECEIVABLE LEDGER General Ledger Accounts Receivable—controlling account$10,000 Accounts Receivable Subsidiary Ledger Individual Accounts Within Ledger: Brown, Joshua$2,000 Clark, Gillian3,000 Greene, Jason1,000 Perez, Sarita4,000 Total$10,000 General Ledger Accounts Receivable—controlling account$10,000 Accounts Receivable Subsidiary Ledger Individual Accounts Within Ledger: Brown, Joshua$2,000 Clark, Gillian3,000 Greene, Jason1,000 Perez, Sarita4,000 Total$10,000 Controlling account balance equals total of accounts in subsidiary ledge r.
ACCOUNTS RECEIVABLE SUBSIDIARY LEDGER FORM
Lines on the top for the name and address of the customer Arranged in alphabetical order Not usually numbered 3 amount columns Debit and credit columns are used to show increases and decreases One balance column—asset account—normal balance is debit ACCOUNTS RECEIVABLE SUBSIDIARY LEDGER FORM
RECORDING SALES ON ACCOUNT Business Transaction ANALYSIS Identify1.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.
RECORDING SALES ON ACCOUNT Business Transaction (cont'd.) ANALYSIS Classify2.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.
RECORDING 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.
RECORDING 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 $ Increases to revenue and liability accounts are recorded as credits. Credit Sales for $200 and Sales Tax Payable for $12.
RECORDING 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 Credit – Debit – Accounts Receivable Subsidiary LedgerSales Tax Casey KleinPayable Debit Credit – Debit – Credit + 12
RECORDING 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 accounts are affected
RECORDING SALES ON ACCOUNT When merchandise is sold to a tax-exempt organization, such as school districts, sales tax is not charged Dec Accts. Rec./So. Branch High School Sales Sales slip
SALES RETURNS AND ALLOWANCES All merchandising businesses expect that some customers will be dissatisfied with their purchases Any merchandise returned for credit or a cash refund is called a sales return Sometimes a customer discovers that merchandise is damaged or defective but still usable Merchants may reduce the sales price for the damaged merchandise Price reduction granted for damaged goods kept by the customer sales allowance
SALES RETURNS AND ALLOWANCES If the sales return or allowance occurs on a charge sale, the business prepares a credit memorandum Lists the details of a sales return or allowance charge customer’s account is credited (decreased) for the amount of the return or allowance Includes spaces for the date and sales slip number of the original sale Includes sales tax charged on the original sale Same form used if it’s a sales allowance Credit memos are pre-numbered and prepared in duplicates
SALES RETURN AND ALLOWANCES Credit memorandum
SALES RETURNS AND ALLOWANCES ACCOUNT Decrease the total revenue earned by a business NOT RECORDED IN THE SALES ACCOUNT Recorded in the Sales Returns & Allowances Summarizes the total returns and allowances for damaged, defective, or otherwise unsatisfactory merchandise Carefully analyzed to detect trouble CONTRA ACCOUNT balance decreases the balance of its related account (Revenue or Sales) Sales Returns and Allowances Debit + Increase Side Normal Balance Credit – Decrease Side
SALES RETURNS & ALLOWANCES Business Transaction On December 4, On Your Mark issued Credit Memorandum 124 to Gabriel Ramos for the return of merchandise purchased on account, $150 plus $9 sales tax. JOURNAL ENTRY 7.
CONTRA 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
CASH REFUND Sometimes a merchant will give a customer a cash refund instead of a credit In the book examples: only give a cash refund if the original sale was a cash sale For cash refunds: Cash in bank is credited instead of Accounts Receivable
POSTING TO THE ACCOUNTS RECEIVABLE SUBSIDIARY LEDGER Don’t forget about: Accts. Rec./Gabriel Ramos Indicates that both Accounts Receivable and Gabriel Ramos are affected Also put a slash in the post reference column This indicates that the amount is posted in two separate accounts After it is posted in the Accts Receivable ledger post the account number After it is posted the subsidiary ledger place a check mark to the right of the slash LOOK ON PAGE 365 FOR AN EXAMPLE