Chapter Ten The Sales Journal and the Purchases Journal Performance Objectives 1. Describe the specific accounts used by a merchandising firm 2. Journalize transactions in a sales journal 3. Post sales journal transactions to an accounts receivable ledger and a general ledger 4. Prepare a schedule of accounts receivable Copyright © Houghton Mifflin Company. All rights reserved. 10 - 2 Performance Objectives 5. Journalize sales returns and allowances, including credit memorandums and returns involving sales tax, in a general journal, and post to the accounts receivable ledger and general ledger 6. Journalize transactions in a three-column purchases journal 7. Post purchases journal transactions to an accounts payable ledger and a general ledger Copyright © Houghton Mifflin Company. All rights reserved. 10 - 3 Performance Objectives 8. Prepare a schedule of accounts payable 9. Journalize transactions involving purchases returns and allowances in a general journal, and post to the accounts payable ledger and general ledger 10. Describe the procedures for handling freight charges on merchandise and other goods Copyright © Houghton Mifflin Company. All rights reserved. 10 - 4 Special Journals • Books of original entry in which specialized types of repetitive transactions are recorded – Sales journal – Purchases journal – Cash receipts journal – Cash payments journal Copyright © Houghton Mifflin Company. All rights reserved. 10 - 5 Performance Objective 1 Describe the specific accounts used by a merchandising firm Copyright © Houghton Mifflin Company. All rights reserved. 10 - 6 Merchandising Accounts Assets CR Liabilities + DR CR Merchandise Inventory + DR CR Sales Tax Payable + DR CR + DR = + Owner's Equity + DR CR Contra Accounts + Revenues + DR CR Sales DR + CR - Expenses + DR CR Purchases + DR CR Sales Returns and Allowances + DR CR Purchases Returns and Allowances + DR CR Sales Discount + DR CR Purchases Discounts + DR CR Freight In + DR CR Copyright © Houghton Mifflin Company. All rights reserved. 10 - 7 Merchandise Inventory • A stock of goods (an asset account) that a company buys and intends to resell, in the same physical condition, at a profit Copyright © Houghton Mifflin Company. All rights reserved. 10 - 8 Sales Tax • A tax levied by a state or city government on the retail sale of goods and services • Paid by the consumer but collected by the retailer • Collection of tax recorded in Sales Tax Payable account Copyright © Houghton Mifflin Company. All rights reserved. 10 - 9 Sales Account • A revenue account for recording the sale of merchandise Copyright © Houghton Mifflin Company. All rights reserved. 10 - 10 Sales Returns and Allowances Account • The account a seller uses to record the physical return of merchandise by customers or a reduction in a bill because merchandise was damaged • Treated as a deduction from sales • Usually evidenced by a credit memorandum issued by the seller Copyright © Houghton Mifflin Company. All rights reserved. 10 - 11 Sales Discount Account • An account that records a deduction from the original price, granted by the seller to the buyer for the prompt payment of an invoice • Sales discount is treated as a deduction from sales Copyright © Houghton Mifflin Company. All rights reserved. 10 - 12 Purchases Account • An account for recording the cost of merchandise acquired for resale Copyright © Houghton Mifflin Company. All rights reserved. 10 - 13 Purchases Returns and Allowances Account • An account that records a company’s return of merchandise it has purchased or a reduction in the bill because of damaged merchandise • Treated as a deduction from Purchases Copyright © Houghton Mifflin Company. All rights reserved. 10 - 14 Purchases Discount Account • An account that records cash discounts granted by suppliers in return for prompt payment • Treated as a deduction from Purchases Copyright © Houghton Mifflin Company. All rights reserved. 10 - 15 Freight In Account • The account used to record transportation charges on incoming merchandise intended for resale Copyright © Houghton Mifflin Company. All rights reserved. 10 - 16 Invoices • Business forms prepared by the seller that list the items shipped, their cost, the terms of the sale, and the mode of shipment • May state freight charges • Issued by seller • Source document that serves as evidence for recording the transaction Copyright © Houghton Mifflin Company. All rights reserved. 10 - 17 Invoices—Whose Point of View? • Seller’s point of view: – Sales invoice – Shows increase in sales revenue • Buyer’s point of view: – Purchases invoice – Shows increase in purchases Copyright © Houghton Mifflin Company. All rights reserved. 10 - 18 Customers and Vendors • People or businesses we buy from are called: – Suppliers – Creditors – Vendors • People or businesses who buy from us are called: – Customers Copyright © Houghton Mifflin Company. All rights reserved. 10 - 19 Invoices Copyright © Houghton Mifflin Company. All rights reserved. 10 - 20 Invoices Copyright © Houghton Mifflin Company. All rights reserved. 10 - 21 Performance Objective 2 Journalize transactions in a sales journal Copyright © Houghton Mifflin Company. All rights reserved. 10 - 22 Sales Journal • A special journal for recording the sale of merchandise on account only • Abbreviated S in Post. Ref. column of ledgers • DR = CR for every line Copyright © Houghton Mifflin Company. All rights reserved. 10 - 23 Columns in the Sales Journal • • • • • • • Date Invoice Number Customer’s Name Post. Ref. Accounts Receivable Debit Sales Tax Payable Credit Sales Credit Copyright © Houghton Mifflin Company. All rights reserved. 10 - 24 Transactions in a Sales Journal with More Than One Column Copyright © Houghton Mifflin Company. All rights reserved. 10 - 25 Performance Objective 3 Post sales journal transactions to an accounts receivable ledger and a general ledger Copyright © Houghton Mifflin Company. All rights reserved. 10 - 26 Some Definitions • Controlling account – An account in the general ledger that summarizes the balances of a subsidiary ledger • Accounts Receivable – A controlling account in the general ledger • Subsidiary ledger – A group of accounts representing individual subdivisions of a controlling account • Accounts receivable ledger – A subsidiary ledger that lists the individual accounts of charge customers in either alphabetical or numerical order Copyright © Houghton Mifflin Company. All rights reserved. 10 - 27 Posting to the General Ledger 1. Draw a single line below the amount columns to indicate the last date in the period 2. Draw double lines below the Date column, Post. Ref. column, and column totals 3. Check that DR = CR 4. Post each column total as a summarizing entry to general ledger at the end of the period 5. After posting, write account numbers in parentheses below column totals Copyright © Houghton Mifflin Company. All rights reserved. 10 - 28 Posting to the Accounts Receivable Ledger 1. Post amount to customer’s account in the accounts receivable subsidiary ledger after recording each transaction 2. After posting, place check mark in the sales journal Post. Ref. column next to the customer's name Copyright © Houghton Mifflin Company. All rights reserved. 10 - 29 Post Sales Journal Transactions to an Accounts Receivable Ledger and a General Ledger Copyright © Houghton Mifflin Company. All rights reserved. 10 - 30 Copyright © Houghton Mifflin Company. All rights reserved. 10 - 31 Copyright © Houghton Mifflin Company. All rights reserved. 10 - 32 Accounts Receivable Ledger: An Example Copyright © Houghton Mifflin Company. All rights reserved. 10 - 33 Performance Objective 4 Prepare a schedule of accounts receivable Copyright © Houghton Mifflin Company. All rights reserved. 10 - 34 A Schedule of Accounts Receivable Copyright © Houghton Mifflin Company. All rights reserved. 10 - 35 Performance Objective 5 Journalize sales returns and allowances, including credit memorandums and returns involving sales tax, in a general journal, and post to the accounts receivable ledger and general ledger Copyright © Houghton Mifflin Company. All rights reserved. 10 - 36 Credit Memorandum • A written statement indicating a seller’s willingness to reduce the amount of a buyer’s debt • Seller records the amount of the credit memorandum in the Sales Returns and Allowances account • Buyer records the amount of the credit memorandum in the Purchases Returns and Allowances account Copyright © Houghton Mifflin Company. All rights reserved. 10 - 37 Credit Memorandum Copyright © Houghton Mifflin Company. All rights reserved. 10 - 38 Journalize Sales Returns and Allowances in General Journal • Journal entry – Credit Accounts Receivable – Debit Sales Returns and Allowances • Why a credit memorandum? – Credit is from the seller’s point of view – Seller credits the buyer’s account Copyright © Houghton Mifflin Company. All rights reserved. 10 - 39 General Journal Entry for Sales Returns and Allowances Copyright © Houghton Mifflin Company. All rights reserved. 10 - 40 Post Sales Returns and Allowances • Post once to: – Sales Returns and Allowances account • Post twice to Account Receivable accounts: – Accounts Receivable account in the general ledger • Use account number 113 for posting reference – Customer’s individual account in the accounts receivable subsidiary ledger • Use √ for posting reference • After posting, Post. Ref. column in the general journal shows 113/√ Copyright © Houghton Mifflin Company. All rights reserved. 10 - 41 Post to Sales Returns and Allowances Copyright © Houghton Mifflin Company. All rights reserved. 10 - 42 Post to Accounts Receivable Copyright © Houghton Mifflin Company. All rights reserved. 10 - 43 Sales Returns Involving Sales Tax Copyright © Houghton Mifflin Company. All rights reserved. 10 - 44 Purchase Requisition • A form used to request that the Purchasing Department buy something • Intended for internal use within a company Copyright © Houghton Mifflin Company. All rights reserved. 10 - 45 Purchase Requisition Copyright © Houghton Mifflin Company. All rights reserved. 10 - 46 Purchase Order • A written order from the buyer of goods to the supplier, listing the items wanted and the terms of the transaction Copyright © Houghton Mifflin Company. All rights reserved. 10 - 47 Purchase Order Copyright © Houghton Mifflin Company. All rights reserved. 10 - 48 Purchase Invoice Copyright © Houghton Mifflin Company. All rights reserved. 10 - 49 Purchases Journal • A special journal used to record the buying of goods on account • Used to record the purchase of merchandise only • Debits must equal credits on each line Copyright © Houghton Mifflin Company. All rights reserved. 10 - 50 Purchases Journal • The flip side of the sales journal • Point of view – The company selling uses the sales journal – The company buying uses the purchase journal – Companies use both! Copyright © Houghton Mifflin Company. All rights reserved. 10 - 51 Performance Objective 6 Journalize transactions in a threecolumn purchases journal Copyright © Houghton Mifflin Company. All rights reserved. 10 - 52 Columns in a Three-Column Purchases Journal • • • • • Date Supplier’s Name Invoice Number Invoice Date Terms Copyright © Houghton Mifflin Company. All rights reserved. • Post. Ref. • Accounts Payable Credit • Freight In Debit • Purchases Debit 10 - 53 Entries in a Three-Column Purchases Journal Copyright © Houghton Mifflin Company. All rights reserved. 10 - 54 Performance Objective 7 Post purchases journal transactions to an accounts payable ledger and a general ledger Copyright © Houghton Mifflin Company. All rights reserved. 10 - 55 Some Definitions • Accounts payable ledger – A subsidiary ledger that lists the individual accounts of creditors in either alphabetical or numerical order • Accounts Payable – A controlling account in the general ledger – Account to which the accounts payable total from the purchases journal is posted at the end of the period Copyright © Houghton Mifflin Company. All rights reserved. 10 - 56 Posting Transactions to the General Ledger at the End of the Period • Draw a single line below the last amounts in the period • Draw double lines below period’s ending date and totals • Crossfoot – Does Accounts Payable column equal sum of all debits? – Use horizontal and vertical addition to prove DR = CR • Post all totals to general ledger • After posting, place account numbers in parentheses below column totals in purchases journal • P in the Post. Ref. column of the ledger account designates the purchases journal Copyright © Houghton Mifflin Company. All rights reserved. 10 - 57 Posting Transactions to the Accounts Payable Ledger • Post amount to supplier’s account each time you record a business transaction • After posting, place check mark in the purchases journal Post. Ref. column • P in the Post. Ref. column of the ledger account designates the purchases journal Copyright © Houghton Mifflin Company. All rights reserved. 10 - 58 Post Transactions from a Purchases Journal: An Example Copyright © Houghton Mifflin Company. All rights reserved. 10 - 59 Post Transactions to an Accounts Payable Ledger: An Example Copyright © Houghton Mifflin Company. All rights reserved. 10 - 60 Performance Objective 8 Prepare a schedule of accounts payable Copyright © Houghton Mifflin Company. All rights reserved. 10 - 61 Prepare a Schedule of Accounts Payable Copyright © Houghton Mifflin Company. All rights reserved. 10 - 62 Performance Objective 9 Journalize transactions involving purchases returns and allowances in a general journal, and post to the accounts payable ledger and general ledger Copyright © Houghton Mifflin Company. All rights reserved. 10 - 63 Purchases Returns and Allowances • Journalize transactions involving purchases returns and allowances in the general journal • Post to: – Accounts payable subsidiary ledger – Accounts Payable general ledger account Copyright © Houghton Mifflin Company. All rights reserved. 10 - 64 Journalize and Post a Purchase Return Copyright © Houghton Mifflin Company. All rights reserved. 10 - 65 Journalize and Post a Purchase Return Copyright © Houghton Mifflin Company. All rights reserved. 10 - 66 Performance Objective 10 Describe the procedures for handling freight charges on merchandise and other goods Copyright © Houghton Mifflin Company. All rights reserved. 10 - 67 Accounts Used to Record Freight Charges on Merchandise and Other Goods • Debit Freight In for transportation charges on incoming merchandise intended for resale • Debit Delivery Expense for transportation charges on merchandise sold and being delivered to customers • Debit asset accounts for freight costs that apply to assets purchased – For example, $300 freight on a large freezer for a restaurant would be debited to that freezer account – Part of the cost of that asset Copyright © Houghton Mifflin Company. All rights reserved. 10 - 68 FOB Destination • Shipping terms under which the seller pays the freight charges and includes them in the selling price • Title or ownership changes hands when the buyer receives the goods Copyright © Houghton Mifflin Company. All rights reserved. 10 - 69 FOB Shipping Point • Shipping terms under which the buyer pays the freight charges between the point of shipment and the destination • Payment may be made directly to the carrier upon receiving the goods or to the supplier if the supplier prepaid the freight charge on behalf of the buyer • Title or ownership changes hands when goods are transferred to the freight company Copyright © Houghton Mifflin Company. All rights reserved. 10 - 70 Internal Control • Plans and procedures built into the accounting system with the following objectives: – To protect assets against fraud and waste – To provide accurate accounting data – To promote an efficient operation – To encourage adherence to management policies Copyright © Houghton Mifflin Company. All rights reserved. 10 - 71 Demonstration Problem • Journalize and post one transaction in the sales journal • Look at a schedule of accounts receivable Copyright © Houghton Mifflin Company. All rights reserved. 10 - 72 Transaction on One Line Sales Journal Inv. No. Date Customer's Name 1 2002 2 July 1 788 Denise Hogan 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 31 Copyright © Houghton Mifflin Company. All rights reserved. Page 32 Sales Tax 8.00% Accounts Sales Tax Post. Receivable Payable Ref. Debit Credit 1,438.83 106.58 1,438.83 106.58 Sales Credit 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 1,332.25 22 1,332.25 10 - 73 Post to Subsidiary Ledger Name Address Date 2005 July 1 Denise Hogan 322 West James, Apartment A9 Whalen, WA 98671 Item Post. Ref. Debit Credit S 32 1,438.83 1,438.83 Total Owed: Copyright © Houghton Mifflin Company. All rights reserved. Balance 1,438.83 10 - 74 Place Post. Ref. in Journal! Sales Journal Inv. Date No. Customer's Name 1 2005 2 July 1 788 Denise Hogan 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 31 Copyright © Houghton Mifflin Company. All rights reserved. Page 32 Sales Tax 8.00% Accounts Sales Tax Post. Receivable Payable Ref. Debit Credit √ 1,438.83 106.58 1,438.83 106.58 Sales Credit 1 1,332.25 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 1,332.25 22 10 - 75 Total at End of Period and Post Totals Sales Journal Date 1 2005 2 July 1 3 6 4 8 5 9 6 14 7 17 8 23 9 23 10 24 11 31 12 13 14 15 16 17 18 19 20 21 22 31 Inv. No. 788 789 790 791 792 793 794 795 796 797 Customer's Name Denise Hogan The River Riders Chris Turk Riverside Rentals Kent Recreation Department Maple Van Auken River Tours, Inc Vickie and Larry Currie Sundowner Tours Kathy Walker Page 32 Sales Tax 8.00% Accounts Sales Tax Post. Receivable Payable Ref. Debit Credit √ √ √ √ √ √ √ √ √ √ 106.58 Sales Credit 1,438.83 978.75 4,590.00 15,721.00 21,038.40 3,980.34 7,038.00 842.08 6,144.00 398.90 1,558.40 294.84 29.55 1,332.25 978.75 4,250.00 15,721.00 19,480.00 3,685.50 7,038.00 779.70 6,144.00 369.35 62,170.30 2,391.75 59,778.55 340.00 62.38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 Post Copyright © Houghton Mifflin Company. All rights reserved. 10 - 76 Post Accounts Receivable General Ledger Account Date 2005 July Accounts Receivable Item 1 Balance 10 21 31 Account No. Post. Ref. √ J 168 J 168 S 32 Copyright © Houghton Mifflin Company. All rights reserved. Debit 65,458.04 62,170.30 Credit 114 Balance Debit Credit 65,458.04 23.25 65,434.79 108.00 65,326.79 127,497.09 10 - 77 Post. Ref. = 114 Sales Journal Date 1 2005 2 July 1 3 6 4 8 5 9 6 14 7 17 8 23 9 23 10 24 11 31 12 13 14 15 16 17 18 19 20 21 31 Inv. No. 788 789 790 791 792 793 794 795 796 797 Customer's Name Denise Hogan The River Riders Chris Turk Riverside Rentals Kent Recreation Department Maple Van Auken River Tours, Inc Vickie and Larry Currie Sundowner Tours Kathy Walker Copyright © Houghton Mifflin Company. All rights reserved. Page 32 Sales Tax 8.00% Accounts Sales Tax Post. Receivable Payable Ref. Debit Credit √ √ √ √ √ √ √ √ √ √ 1,438.83 978.75 4,590.00 15,721.00 21,038.40 3,980.34 7,038.00 842.08 6,144.00 398.90 62,170.30 ( 114 ) 106.58 Sales Credit 29.55 1,332.25 978.75 4,250.00 15,721.00 19,480.00 3,685.50 7,038.00 779.70 6,144.00 369.35 2,391.75 59,778.55 340.00 1,558.40 294.84 62.38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 Post 10 - 78 Post Sales Tax Payable General Ledger Account Date 2005 July Sales Tax Payable Item 1 Balance 14 21 31 Account No Post. Ref. √ CP 41 J 168 S 32 Debit Balance Debit Credit Credit 3,085.19 3,085.19 8.00 Copyright © Houghton Mifflin Company. All rights reserved. 213 3,085.19 0.00 8.00 2,391.75 2,383.75 10 - 79 Post. Ref. = 213 Sales Journal Inv. No. Date Customer's Name 1 2005 2 July 1 788 Denise Hogan 3 6 789 The River Riders 4 8 790 Chris Turk 5 9 791 Riverside Rentals 6 14 792 Kent Recreation Department 7 17 793 Maple Van Auken 8 23 794 River Tours, Inc 9 23 795 Vickie and Larry Currie 10 24 796 Sundowner Tours 11 31 797 Kathy Walker 12 13 14 15 16 17 18 19 20 21 22 31 23 Copyright © Houghton Mifflin Company. All rights reserved. Page 32 Sales Tax 8.00% Accounts Sales Tax Post. Receivable Payable Ref. Debit Credit √ √ √ √ √ √ √ √ √ √ 1,438.83 978.75 4,590.00 15,721.00 21,038.40 3,980.34 7,038.00 842.08 6,144.00 398.90 106.58 1,558.40 294.84 62,170.30 ( 114 ) 2,391.75 ( 213 ) 340.00 62.38 29.55 Sales Credit 1,332.25 978.75 4,250.00 15,721.00 19,480.00 3,685.50 7,038.00 779.70 6,144.00 369.35 59,778.55 Post 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 10 - 80 Post Sales General Ledger Account Sales Account No Post. Ref. Date 2005 July 31 Item Debit S 32 Copyright © Houghton Mifflin Company. All rights reserved. Credit 59,778.55 411 Balance Debit Credit 59,778.55 10 - 81 Post. Ref. = 411 Sales Journal Date 1 2005 2 July 1 3 6 4 8 5 9 6 14 7 17 8 23 9 23 10 24 11 31 12 13 14 15 16 17 18 19 20 21 22 31 23 Inv. No. 788 789 790 791 792 793 794 795 796 797 Customer's Name Denise Hogan The River Riders Chris Turk Riverside Rentals Kent Recreation Department Maple Van Auken River Tours, Inc Vickie and Larry Currie Sundowner Tours Kathy Walker Copyright © Houghton Mifflin Company. All rights reserved. Page 32 Sales Tax 8.00% Accounts Sales Tax Post Receivable Payable Ref Debit Credit √ √ √ √ √ √ √ √ √ √ 1,438.83 978.75 4,590.00 15,721.00 21,038.40 3,980.34 7,038.00 842.08 6,144.00 398.90 106.58 1,558.40 294.84 62,170.30 ( 114 ) 2,391.75 ( 213 ) 340.00 62.38 29.55 Sales Credit 1,332.25 978.75 4,250.00 15,721.00 19,480.00 3,685.50 7,038.00 779.70 6,144.00 369.35 59,778.55 ( 411 ) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 10 - 82 Sales Journal Inv. No. Date Customer's Name 1 2005 2 July 1 788 Denise Hogan 3 6 789 The River Riders 4 8 790 Chris Turk 5 9 791 Riverside Rentals 6 14 792 Kent Recreation Department 7 17 793 Maple Van Auken 8 23 794 River Tours, Inc 9 23 795 Vickie and Larry Currie 10 24 796 Sundowner Tours 11 31 797 Kathy Walker 12 13 14 15 16 17 18 19 20 21 22 31 23 Prove DR = CR Copyright © Houghton Mifflin Company. All rights reserved. Page 32 Accounts Sales Tax Post. Receivable Payable Ref. Debit Credit √ √ √ √ √ √ √ √ √ √ 1,438.83 978.75 4,590.00 15,721.00 21,038.40 3,980.34 7,038.00 842.08 6,144.00 398.90 106.58 1,558.40 294.84 62,170.30 (114 ) DR 62,170.30 2,391.75 (213 ) = Yes 340.00 62.38 29.55 Sales Credit 1,332.25 978.75 4,250.00 15,721.00 19,480.00 3,685.50 7,038.00 779.70 6,144.00 369.35 59,778.55 ( 411 ) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 CR 62,170.30 10 - 83 At the End of the Period, Track What Customers Owe You Dean's Kayaks Schedule of Accounts Receivable July 31, 2005 Vickie and Larry Currie $ 842.08 Denise Hogan 1,438.83 Kent Recreation Department 21,038.40 Chris Turk 4,590.00 Maple Van Auken 3,980.34 Kathy Walker 398.90 The River Riders 978.75 Riverside Rentals 15,721.00 River Tours 7,038.00 Sundowner Tours 6,144.00 Total Accounts Receivable Copyright © Houghton Mifflin Company. All rights reserved. $ 62,170.30 10 - 84