chapter fourteen accounting for sales mcgraw-hill/irwin accounting fundamentals, 7/e © 2006 the...
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CHAPTER FOURTEEN
ACCOUNTING FOR SALES
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1. Record the entries for the sale of merchandise for cash or on credit.
2. Record sales discounts.
3. Record the entries for sales returns and allowances.
4. Record sales tax.
ACCOUNTING FOR SALES
Objectives:
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Recording Sales of Merchandise
Sales of merchandise are recorded in a revenue account called Sales. The amount of each sale of merchandise is credit to Sales. The offsetting debit is to Cash or Accounts Receivable.
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Transaction
• $760 worth of merchandise was sold for cash.
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Transaction Analysis
•Cash is debited $760.
•Sales is credited $760.
Post Ref Debit Credit
20 xx
Mar 7 Cash 760 Sales 760 Cash sales for f irst w eek of March.
Date Description
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Transaction
• $300 worth of merchandise was sold on credit.
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Transaction Analysis
• Debit Accounts Receivable $300.
• Credit Sales in the amount $300. Post Ref Debit Credit
20 xx
Mar 8 Accounts Receivable 300300
Sold merchandise on credit to Shane
Appliance Store; Invoice 536;
terms 3/15, n/60
Date Description
Sales
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Recording Amounts Received From Sales of Merchandise on Credit
If the cash discount is taken three accounts are affected: Cash, Sales Discount and Account Receivable.
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Transaction
• $291 was received for the payment of an Accounts Receivable. The sales discount is $9, ($300 x 0.03).
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Transaction Analysis
• Cash is debited in the amount of $291.
• Sales Discount is debited in the amount of $9.
• Accounts receivable is credited in the full amount of $300.
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Transaction Analysis (continued)
Post Ref Debit Credit
20 xx
Mar 23 291 Sales Discount 9 Accounts Receivable 300 Received from Shane Appliance Store
for Invoice 536 less discount
Date Description
Cash
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Recording Sales Returns and Allowances
When a customer returns merchandise or receives an allowance, there is a decrease in revenue.
This decrease is recorded by debiting the revenue account, Sales Returns and Allowances, and crediting either Cash or Accounts Receivable.
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Recording Sales Returns and Allowances (continued)
Many businesses provide a cash refund if customers return merchandise or ask for an allowance on goods sold for cash.
•Sales Returns and Allowances account is debited.
•Cash is credited.
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Recording Sales Tax
• When a sales slip or invoice includes sales tax, the tax is collected from the customer and either Cash or Accounts Receivable is debited.
• Because the sales tax is owed to the state or city taxing authority, it is credited to a liability account called Sales Tax Payable.
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Sales Returns and Allowances and Sales Tax
• Customers who return merchandise or receive an allowance from retail businesses that charge sales tax must be given a refund for the price of the goods plus the sales tax.
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Accounting Terminology
•Credit sales
•Merchandise inventory
•Sales discount
•Sales returns and allowances
•Sales tax
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Chapter Summary
• Sales of merchandise are credited to a revenue account called Sales.
• When a customer deducts a cash discount, the amount is debited to the Sales Discount account.
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Chapter Summary (continued)
• The Sales Returns and Allowances account is used to record the decrease in sales revenue that results when a customer returns merchandise or receives an allowance. This account is debited for all returns and allowances. Either Cash or Accounts Receivable is credited.
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Chapter Summary (continued)
• States and cities may impose a sales tax. The retailer collects this tax from customers.
• When sales are made, the amount of sales tax is credited to the liability account Sales Tax Payable.
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Chapter Summary (continued)
• If a refund or a credit for a sales return or allowance involves sales tax, Sales Tax Payable is debited for the amount of the tax and Sales Returns and Allowances is debited for the amount of the return or allowance.
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Investigating on the Internet
As a research assignment, access the web site for Wal*Mart® and report the sources of information that might concern sales of merchandise.
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1. Sales of merchandise are credited to a revenue account called Sales.
2. Sales tax is normally credited to an
account called Sales Tax Payable 3. Sales Returns and Allowances is
usually credited when a customer returns goods or receives an allowance.
Topic QuizAnswer the following true/false questions:
TRUE
FALSE
TRUE