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Accounting for Sales and Accounts Receivable

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Accounting for Sales and Accounts Receivable 7-1 Chapter 7 Accounting for Sales and Accounts Receivable Section 1: Merchandise Sales Section Objectives 1. Record credit sales in a sales journal. 2. Post from the sales journal to the general ledger accounts. McGraw-Hill © 2007 The McGraw-Hill Companies, Inc. All rights reserved. The three types of business operations are: Service business Merchandising business Manufacturing business 7-3 QUESTION: What is a service business? ANSWER: A service business is a business that sells services. 7-4 QUESTION: What is a merchandising business? ANSWER: A merchandising business is a business that sells goods purchased for resale. 7-5 QUESTION: What is a manufacturing business? ANSWER: A manufacturing business is a business that sells goods that it has produced. 7-6 Recall JT’s Consulting Services from earlier chapters. QUESTION: What kind of business operation is JT’s Consulting Services? ANSWER: It is a service business. Meet The Style Shop Mary Amos is the sole proprietor of the firm. The Style Shop is a merchandising business that sells the latest fashion clothing for men, women, and children. It is a retail business. 7-8 QUESTION: What is a retail business? ANSWER: A retail business is a business that sells directly to individual customers. 7-9 The Style Shop must account for the purchases and sales of goods, and for merchandise inventory. QUESTION: What is merchandise inventory? ANSWER: Merchandise inventory is the stock of goods a merchandising business keeps on hand. 7-11 To allow for efficient recording of financial data, the accounting systems of most merchandising businesses include special journals and subsidiary ledgers. Special Journals and Subsidiary Ledgers 7-13 QUESTION: What is a special journal? ANSWER: A special journal is a journal used to record only one type of transaction. 7-14 QUESTION: What is a subsidiary ledger? ANSWER: A subsidiary ledger is a ledger dedicated to accounts of a single type. 7-15 Journals Used by Merchandising Businesses Type of Journal Purpose Sales To record sales of merchandise on credit Purchases To record purchases of merchandise on credit Cash receipts To record cash received from all sources Cash payments To record all disbursements of cash General To record all transactions that are not recorded in another special journal and all adjusting and closing entries 7-16 Ledgers Used by Merchandising Businesses Type of Ledger Content General Assets, liabilities, owner’s equity, revenue, and expense accounts Accounts Accounts for credit customers receivable Accounts Accounts for creditors payable 7-17 Merchandising Business Chart of Accounts A merchandising business has accounts that are not used in a service business. You will learn about these accounts in this and following chapters. 7-18 The Style Shop Chart of Accounts ASSETS 101 Cash 105 Petty Cash Fund REVENUE 109 Notes Receivable 401 Sales 111 Accounts Receivable 451 Sales Returns and Allowances 112 Allowance for Doubtful Accounts 491 Interest Income 116 Interest Receivable 493 Miscellaneous Income 121 Merchandise Inventory COST OF GOODS SOLD 126 Prepaid Insurance 501 Purchases 127 Prepaid Interest 502 Freight In 129 Supplies 503 Purchases Returns and Allowances 131 Store Equipment 504 Purchases Discounts 132 Accumulated Depreciation - Store Equip. 141 Office Equipment 142 Accumulated Depreciation - Office Equip. EXPENSES LIABILITIES 611 Salaries Expense - Sales 612 Supplies Expense 201 Notes Payable — Trade 614 Advertising Expense 202 Notes Payable — Bank 617 Cash Short or Over 205 Accounts Payable 626 Depreciation Expense - Store Equipment 216 Interest Payable 634 Rent Expense 221 Social Security Tax Payable 637 Salaries Expense - Office 222 Medicare Tax Payable 639 Insurance Expense 223 Employee Income Tax Payable 641 Payroll Taxes Expense 225 Federal Unemployment Tax Payable 643 Utilities Expense 227 State Unemployment Tax Payable 649 Telephone Expense 229 Salaries Payable 651 Uncollectible Accounts Expense 231 Sales Tax Payable 657 Bank Fees Expense OWNER’S EQUITY 658 Delivery Expense 301 Mary Amos, Capital 659 Depreciation Expense - Office Equipment 302 Mary Amos, Drawing 691 Interest Expense 399 Income Summary 693 Miscellaneous Expense 7-19 The Sales Journal 7-20 QUESTION: What is a sales journal? ANSWER: A sales journal is a special journal used to record sales of merchandise on credit. 7-21 General Journal and General Ledger Consider how credit sales made at The Style Shop would be entered and posted using a general journal and a general ledger. General Journal and General Ledger Four credit sales made on January 3, 8, 11, and 15 require four separate entries in the general journal: Four debits to Accounts Receivable Four credits to Sales Tax Payable Four credits to Sales Four descriptions GENERAL JOURNAL PAGE 2 Date DESCRIPTION POST. DEBIT CREDIT 20-- REF. Jan. 3 Accounts Receivable 111 432.00 Sales Tax Payable 231 32.00 Sales 401 400.00 Sold merchandise on credit to Roy Anderson, Sales Slip 1101 Accounts Receivable 111 648.00 8 Sales Tax Payable 231 48.00 Sales 401 600.00 Sold merchandise on credit to Cathy Ball, Sales Slip 1102 11 Accounts Receivable 111 756.00 Sales Tax Payable 231 56.00 Sales 401 700.00 Sold merchandise on credit to Barbara Coe, Sales Slip 1103 15 Accounts Receivable 111 324.00 Sales Tax Payable 231 24.00 Sales 401 300.00 Sold merchandise on credit to Amalia Rodriguez, Sales Slip 1104 7-24 General Journal and General Ledger The four credit sales require twelve postings to the general ledger: Four postings to Accounts Receivable Four postings to Sales Tax Payable Four postings to Sales YIKES! General Ledger ACCOUNT Accounts Receivable ACCOUNT NO. 111 DATE EXPLANATION POST. DEBIT CREDIT BALANCE REF. DEBIT CREDIT 20-- Jan. 1 Balance 3,240.00 3 J2 432.00 3,672.00 8 J2 648.00 4,320.00 11 J2 756.00 5,076.00 15 J2 324.00 5,400.00 7-26 General Ledger ACCOUNT Sales Tax Payable ACCOUNT NO. 231 DATE DESCRIPTION POST. DEBIT CREDIT BALANCE REF. DEBIT CREDIT 20-- Jan. 1 Balance 756.00 3 J2 32.00 788.00 8 J2 48.00 836.00 11 J2 56.00 892.00 15 J2 24.00 916.00 7-27 General Ledger ACCOUNT Sales ACCOUNT NO. 401 DATE DESCRIPTION POST. DEBIT CREDIT BALANCE REF. DEBIT CREDIT 20-- Jan. 3 J2 400.00 400.00 8 J2 600.00 1,000.00 11 J2 700.00 1,700.00 15 J2 300.00 2,000.00 7-28 Recording Transactions in a Sales Journal 7-29 The posting of twelve items to three general ledger accounts represents duplication of effort. This is not efficient for a business that has a substantial number of credit sales each month. A special journal intended only for credit sales provides a more efficient method of recording these transactions. Objective 1 Record credit sales in a sales journal. 7-32 In a retail business such as The Style Shop, the data needed for each entry is taken from a copy of the customer’s sales slip. Sales Slip The Style Shop 400.00 400.00 S Harris 32.00 Total 432.00 Roy Anderson 8913 South Hampton Road Dallas, TX 75232 7-34 In a sales journal, only one line is needed to record all information for each transaction. This helps avoid repetition. The Style Shop 2007 Trendsetter Lane 400.00 400.00 Dallas, TX 75268 S Harris Sales Tax 32.00 Total 432.00 Roy Anderson 8913 South Hampton Road Dallas, TX 75232 SALES JOURNAL PAGE 1 SALES ACCOUNTS SALES TAX DATE SLIP CUSTOMER’S NAME POST. RECEIVABLE PAYABLE SALES NO. REF. DEBIT CREDIT CREDIT 20-- Jan. 3 1101 Roy Anderson 432.00 32.00 400.00 7-36 SALES JOURNAL PAGE 1 SALES ACCOUNTS SALES TAX DATE SLIP CUSTOMER’S NAME POST. RECEIVABLE PAYABLE SALES NO. REF. DEBIT CREDIT CREDIT 20-- Jan. 3 1101 Roy Anderson 214.00 14.00 200.00 8 1102 Cathy Ball 535.00 35.00 500.00 11 1103 Barbara Coe 642.00 42.00 600.00 15 1104 Amalia Rodriguez 428.00 28.00 400.00 18 1105 Fred Wu 856.00 56.00 800.00 21 1106 Linda Carter 321.00 21.00 300.00 28 1107 Kim Ramirez 107.00 7.00 100.00 29 1108 Mesia Davis 1070.00 70.00 1000.00 31 1109 Alma Sanchez 963.00 63.00 900.00 31 1110 Roy Anderson 267.50 17.50 250.00 31 Totals 5,886.00 436.00 5.450.00 7-37 Thank You for using College Accounting, 11th Edition Price • Haddock • Brock 7-38.
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