1. Moving from SoleProprietorships to Merchandising Corporations!!! Chapter 14:Accounting forSales and Cash Receipts

2. Essential Outcomes14. Understands the relationship betweensales, cash sales and sales tax bybeing able to: a. Explain the difference between a servicebusiness & a merchandising business. b. Explain the difference between a retailer& a wholesaler c. Record a variety of sales and cashreceipt transactions in a general journal d. Calculate sales tax, sales discount andsales returns & allowances e. Define the accounting terms in this 3. Merchandising Businesses Sell Merchandise: goods that arepurchased for resale to customers. 4. 1. Purchasemerchandise for resale2. Sale of 5. goods forProfitcash or on account 4. Pay expenses: 3. Collect rent, utilities, salaries, etc. cash from accountsOperating Cycle ofMerchandising business 5. New account for Merchandising Business: Merchandise Inventory: Merchandise: goods bought for resaleInventory: items of merchandise the business has in stockMerchandise Inventory Account: inventory is represented in the General Ledger as an assetNormal Balance: DebitItems in the Merchandise Inventory account are sold during the year and more items for resale are purchased during the yearMerchandise Inventory ONLY USED when recording adjusting entries 6. New account for MerchandisingBusiness: 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 ata later date Charge customer: Person to whom the sale on account ismade Credit Cards: issued by businesses so customers can charge purchases 8. Sales Slip Sales Slip: date of sale name of customer description, quantity & price ofitems sold Pre-numbered includes salestax 9. Added to the sale price of an item Usually given as %, such as 7%, etc. Paid by customer and collected bybusiness Business required to periodicallysend money to state Account used: Sales Tax Payable Normal balance: creditState Sales Tax 10. Multiply the total sales by thepercent. Example: total sales $510 andsales tax is 7%$510.00 x 7% (.07) = $35.70$510.00 + $35.70 = $545.70 totalprice Calculating SalesTax 11. Credit Terms Credit Terms: state the time allowedfor payment for customers whopurchased merchandise on account Credit term is: n/30 n stands for net (or total amount ofthe sale) & 30 stands for number ofdays customer has to pay bill 12. Account Receivable Subsidiary Ledger 13. Accounts Receivable Subsidiary Ledger Businesses that have lotsof people charging onaccount, set up accountsreceivable subsidiaryledger A/R subsidiary ledger hasaccount forms for eachcustomer who charges onaccount 14. Accounts Receivable Subsidiary Ledger A/R Subsidiary Ledger is book or ledgerthat provides detailed information foreach client (not part of General Ledger) In General Ledger, have AccountsReceivable account that equals total ofall accounts in A/R subsidiary ledger Accounts Receivable is a controllingaccounthas a summary of allinformation recorded in the A/RSubsidiary Ledger 15. Accounts Receivable Subsidiary Ledger Form 16. Recording Sales "on account" 17. Accounts Receivable Subsidiary Ledger On Dec 1, sold merchandise on account to Casey Klein for $200 plus sales tax of $12, Sales Slip 50Slash means you will post to two differentplaces.On top of slashrecord account # and 18. Sales Returns & Allowance Sales Returns: Customer returnsmerchandise due to wrong size, wrongcolor, defective, etc.any merchandisereturned for credit or cash refundcalled sales return. Sales Allowance: customer findsmerchandise or damaged ordefective, but is still useable, sellermay grant a price reduction if customerwilling to keep merchandisethus, thisis called a sales allowance 19. Credit Memorandum Source document for sales returns and allowances is a credit memorandum. 20. Sales Returns & Allowance Account Reduces or decreases total revenueearned by the business Returns or allowances recorded inSales Return & Allowance account Sales Returns & Allowances iscontra account to Sales Account Contra Account: means that itsbalances decreases the contrarevenue account (this would beSales) 21. Sales Returns & Allowance Account To record a return or an allowance charged on account:Sales Returns & Allowances$45.00Sales Tax Payable 5.00Accounts Receivable/Casey Klein $50.00Credit Memo 560 Usually only give cash refunds for cash sales and not for on account 22. Posting to the Accounts Receivable Subsidiary Ledger 23. Posting Accounts Receivable You will be posting twice 1. Once to the General LedgerAccounts Receivable account 2. Once to the AccountsReceivable Subsidiary Ledgerunder the specific customersname 24. When Posting Account Receivables.1. Do the following: First, post as we have alwaysdonego to GL record info, comeback and on top of slash, recordA/R account number Second, go to customer in A/RSubsidiary Ledger, record info, goback to GJ and place a check markbelow the slash. 25. Cash Receipts 26. Kinds of Cash Receipts1. Cash receipt: a transaction in which money comes in to a business2. Three most common forms of cash for a merchandising business are: Payments from charge customers Cash sales 27. Cash Sales1. Business receives full payment at time of sale2. Cash registers record daily sales on two tapes: one customer receives and one is kept inside cash register3. End of day, cash register totaled and cleared4. A proof is usually made to make sure cash in register equals the cash register tape5. Tape used for proof becomes source document for journal entry for cash sales 28. Bankcard Sales1. Bank cards issued by bank and honored at many business2. Bank card sales are separate from Cash Sales3. Bank card sales are included on the Cash Register sales slip4. Record separately from the Cash Sales 29. Journal Entry for Cash Sales& Bankcard Sales1. Cash Sales journal entry:Cash in Bank $3392.00Sales $3,200.00 Sales Tax Payable 192.002. Bank Card Sales journal entry:Cash in Bank$2,650.00 Sales $2,500.00 Sales Tax Payable 30. Cash/Sales Discounts1. Cash discount or sales discount: amount that a customer can deduct from the total owed for paying early2. Terms would look something like this: 2/10, n/303. 2/10: Customer receives a 2% (.02) discount if pay within 10 days4. n/30: do not pay without 10 days, have 30 days to pay full amount 31. Cash/Sales Discounts1. 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 daysOtherwise, must pay the full amount after15 days. 32. Journal Entry1. Cash in Bank$1,212.50 Sales Discount 37.50 A/R-Name of Company$1,250.00 33. Thats all folks!!! Now, on to our workbooks for some hands on work!