1. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 10-1 Journalizing Sales on Account Using a Sales Journal

2. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning SALES TAX The two major activities of a merchandising business are Purchases and Sales of merchandise A customer is a person or business to whom merchandise or services are sold Individuals, Schools, Churches, etc. Most states (and even some cities) require a tax be collected from customers for each sale Sales Tax – a tax on the sale of merchandise or services Usually a percentage of sales (6% in MI) Business must file reports with the government and pay the amount of sales tax collected. 2 LESSON 10-1 page 270

3. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning SALES TAX Businesses must keep accurate records of Total Sales Total Sales Tax Collected The amount of sales tax collected is a liability until paid to the government agency. Recorded in a separate liability account titled Sales Tax Payable, which has a normal credit balance 3 LESSON 10-1 page 270

4. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning SALES OF MERCHANDISE ON ACCOUNT Merchandise may be sold On Account For Cash A sale increase the revenue of a business The revenue should be recorded at the time of a sale, not on the date cash is received Accounting Concept: Realization of Revenue A sale for which cash will be received at a later date is known as a sale on account. Also referred to as a charge sale 4 LESSON 10-1 page 271

5. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning SALES OF MERCHANDISE ON ACCOUNT Total due from all charge customers can be summarized in a general ledger account titled Accounts Receivable Accounts Receivable is an asset account with a normal debit balance 5 LESSON 10-1 page 271

6. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning SALES JOURNAL A special journal used to record only sales of merchandise on account is called a Sales Journal Each sale on account transaction can be recorded on one line of the sales journal. Special amount columns: Accounts Receivable, Debit, Sales Credit and Sales Tax Payable Credit 6 LESSON 10-1 page 272

7. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning SALES INVOICE A form describing the goods or services sold, the quantity, and the price is known as an invoice When merchandise is sold on account, the seller prepares one An invoice used as a source document for recording a sale on account is a Sales Invoice Accounting Concept: Objective Evidence Also referred to as a sales ticket or sales slip Customer considers it to be a purchase invoice 7 LESSON 10-1 page 272

8. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 8 LESSON 10-1 SALES INVOICE page 272

9. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning SALE ON ACCOUNT A sale on account transaction increases the amount to be collected later from a customer. Payment will be received at a later date The sale is recorded at the time the sale is made because the sale has taken place and payment is due Accounting Concept: Realization of Revenue Accounts Receivable is debited for the total sales and sales tax shows an increase in the asset account Sales is credited for the price of the goods shows an increase in the revenue account Sales Tax Payable is credited for the amount of sales tax shows an increase in the liability account 9 LESSON 10-1 page 273

10. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 10 LESSON 10-1 SALE ON ACCOUNT 123456 page 273 November 3. Sold merchandise on account to Village Crafts, $540.00, plus sales tax, $32.40; total, $572.40. Sales Invoice No. 76. 1. Write the date. 6. Write the sales tax amount. 2. Write the customer name. 3. Write the sales invoice number. 4. Write the total amount owed by the customer. 5. Write the sales amount.

11. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning TOTALING, PROVING, AND RULING A SALES JOURNAL The procedures for ruling a sales journal are the same as the procedures for proving and ruling a cash payments journal in Chapter 9 Debits = Credits Accounts Receivable Debit = Sales Credit + Sales Tax Payable Credit 11 LESSON 10-1 page 274

12. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 12 LESSON 10-1 TOTALING, PROVING, AND RULING A SALES JOURNAL page 274

13. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 13 LESSON 10-1 TERMS REVIEW customer sales tax sales journal page 275

14. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning WORK TOGETHER 10-1 pg. 275 14 LESSON 10-1 Journalizing sales on account; proving and ruling a sales journal 1.Using the current year, journalize the following transactions on page 9 of the sales journal. The sales invoice source document is abbreviated as S. Transactions: Sept. 1. Sold merchandise on account to Adrian Makowski, $800.00, plus sales tax, $48.00; total $848.00. S104 7. Sold merchandise on account to Columbus City Schools, $875.00. Columbus City School is exempt from sales tax. S105 11. Sold merchandise on account to Swiss Delight, $1,460.00, plus sales tax, $87.60; total, $1,547.60. S106 2.Total, prove, and rule the sales journal. (see next slide)

15. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning WORK TOGETHER 10-1 pg. 275 15 LESSON 10-1 9 Sep. 1 Adrian Makowski 104848.00800.00 48.00 105 Columbus City Schools 11 875.00 106Swiss Delight 28 1547.601460.0087.60 30 Totals3270.60 3135.00 135.60

16. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning WORK TOGETHER 10-1 pg. 275 16 LESSON 10-1

17. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning On Your Own 10-1 pg. 275 17 LESSON 10-1 Journalizing sales on account; proving and ruling a sales journal 1.Using the current year, journalize the following transactions on page 9 of the sales journal. The sales invoice source document is abbreviated as S. Transactions: Jun. 5. Sold merchandise on account to Peter Gallaher, $650.00, plus sales tax, $39.00; total $689.00. S410 12. Sold merchandise on account to Spann Auto Supply, $590.00, plus sales tax, $35.40; total $625.40. S411 24. Sold merchandise on account to Fleming College, $545.00. Fleming College is exempt from sales tax. S412 2.Total, prove, and rule the sales journal. (see next slide)

18. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Audit Your Understanding 10-1 1.How does a merchandising business differ from a service business? 2.How are sales tax rates usually stated? 3.Why is sales tax collected considered a liability? 4.What is the title of the general ledger account used to summarize the total amount due from all charge customers? 18 LESSON 10-1