CHAPTER FOURTEEN
ACCOUNTING
FOR SALES
14-3
ACCOUNTING FOR SALES
Objectives:
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.
McGraw-Hill/Irwin
Accounting Fundamentals, 7/e
© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
14-4
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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Accounting Fundamentals, 7/e
© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
14-5
Transaction
• $760 worth of merchandise was
sold for cash.
McGraw-Hill/Irwin
Accounting Fundamentals, 7/e
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14-6
Transaction Analysis
•Cash is debited $760.
•Sales is credited $760.
Date
Description
Post
Ref
Debit
Credit
20 xx
Mar
7
Cash
Sales
760
760
Cash sales for first w eek of March .
McGraw-Hill/Irwin
Accounting Fundamentals, 7/e
© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
14-7
Transaction
• $300 worth of merchandise was
sold on credit.
McGraw-Hill/Irwin
Accounting Fundamentals, 7/e
© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
14-8
Transaction Analysis
• Debit Accounts Receivable $300.
• Credit Sales in the amount $300.
Date
Post
Ref
Description
Debit
Credit
20 xx
Mar
8
Accounts Receivable
Sales
300
300
Sold merchandise on credit to Shane
Appliance Store; Invoice 536;
terms 3/15, n/60
McGraw-Hill/Irwin
Accounting Fundamentals, 7/e
© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
14-9
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.
McGraw-Hill/Irwin
Accounting Fundamentals, 7/e
© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
14-10
Transaction
• $291 was received for the payment
of an Accounts Receivable. The
sales discount is $9, ($300 x 0.03).
McGraw-Hill/Irwin
Accounting Fundamentals, 7/e
© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
14-11
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.
McGraw-Hill/Irwin
Accounting Fundamentals, 7/e
© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
14-12
Transaction Analysis (continued)
Date
20
Mar
Description
Post
Ref
Debit
Credit
xx
23 Cash
Sales Discount
Accounts Receivable
291
9
300
Received from Shane Appliance Store
for Invoice 536 less discount
McGraw-Hill/Irwin
Accounting Fundamentals, 7/e
© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
14-13
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.
McGraw-Hill/Irwin
Accounting Fundamentals, 7/e
© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
14-14
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.
McGraw-Hill/Irwin
Accounting Fundamentals, 7/e
© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
14-15
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.
McGraw-Hill/Irwin
Accounting Fundamentals, 7/e
© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
14-16
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.
McGraw-Hill/Irwin
Accounting Fundamentals, 7/e
© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
14-17
Accounting Terminology
•Credit sales
•Merchandise inventory
•Sales discount
•Sales returns and
allowances
•Sales tax
McGraw-Hill/Irwin
Accounting Fundamentals, 7/e
© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
14-18
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.
McGraw-Hill/Irwin
Accounting Fundamentals, 7/e
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14-19
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.
McGraw-Hill/Irwin
Accounting Fundamentals, 7/e
© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
14-20
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.
McGraw-Hill/Irwin
Accounting Fundamentals, 7/e
© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
14-21
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.
McGraw-Hill/Irwin
Accounting Fundamentals, 7/e
© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
14-22
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.
McGraw-Hill/Irwin
Accounting Fundamentals, 7/e
© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.
14-23
Topic Quiz
Answer the following true/false questions:
1. Sales of merchandise are credited to a
revenue account called Sales.
TRUE
2. Sales tax is normally credited to an
account called Sales Tax Payable
TRUE
3. Sales Returns and Allowances is
usually credited when a customer
returns goods or receives an
allowance.
McGraw-Hill/Irwin
Accounting Fundamentals, 7/e
FALSE
© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved.