Accounting for Sales and Receipts

Chapter 14
The Operating Cycle of a
Merchandising Business
 Retailer – a business that sells to the final user
 Wholesaler – a business that sells to retailers.
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New and Different
 Change Fund
 Petty Cash Fund
 Allowance for
Uncollectible Accounts
 Notes
 Interest Receivable
 Merchandise Inventory
 Prepaid Insurance
 Delivery Equipment
 Accumulated
• Bankcard Fees
• Cash Short and
• Depreciation
• Insurance
• Interest Expense
• Loss/Gain on
Disposal of Plant
• Uncollectible
Accounts Expense
Discount on Notes Payable
Sales Tax Payable
Capital Stock
Retained Earnings
Sales Discount
Sales/Purchases Returns
and Allowances
Interest Income
Transportation In
Purchases Discount
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Accounts Used by a
 Merchandise – goods bought for resale.
 Inventory – merchandise on hand for resale
 Merchandise Inventory Account –
 Asset Account
 Increased with a debit and decreased with a credit
 Sales Account – When a retailer sells goods to a
customer the amount of the merchandise sold is
recorded in the Sales account.
 Sales is a revenue account
 Increase with a credit and decrease with a debit
 Both cash sales and sales on account are recorded here
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Analyzing Sales
 Sales on account
 Credit cards (store and bank)
 Sales Slip – a form that lists date of sale, customer account
identification and description, quantity, and price of the items
 Sales slips are pre-numbered to help businesses keep track of
all sales made on account
 Sales Tax – most states and some cities tax the retail sale of
goods and services.
 Sales taxes are periodically sent to the state (or city). Until they are
sent, the business holds them in a Sales Tax Payable account.
 Credit Terms – The sales slip usually has a spot for credit terms
on it. n/30 means net amount due in 30 days
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The Account Receivable
Subsidiary Ledger
 Small businesses with few Accounts Receivable
accounts usually list them individually in the
General Ledger. Large businesses with many
Accounts Receivable accounts keep a separate
Accounts Receivable Subsidiary Ledger with the
individual accounts listed and then have an
Accounts Receivable (controlling account) listed in
the General Ledger that is a total of all individual
accounts in the subsidiary ledger.
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Sales Returns and
 Sales Return – Any merchandise returned for credit
or cash refund
 Sales Allowance – a price reduction granted for
damaged goods kept by the customer.
 Credit Memorandum – If the sales return or
allowance occurs on a charge sale, the business
usually prepares a credit memo. It lists the details of
a sales return or allowance and the customer’s
account is credited for the amount returned or
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• Sales Returns and Allowances Account – decreases the total
revenue earned by a business.
• Contra Account – an account that offsets or decreases another
• Sales Returns and Allowances is a contra account to
• Contra accounts have the opposite normal balance sides
as the accounts they offset.
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Journalizing a Return from
an On Account Sale
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 Receivable
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Cash Transactions
 Cash Receipt – a transaction in which money is
received by a business.
 Cash Sales – full payment at the time of sale
 Charge Customer Payments – When a customer comes
in to pay on their account, the employee prepares a
receipt. The receipt number is the source document.
 Bankcard Sales – the bank pays the store and then the
bank collects at a later date from the customer
 Other Cash Receipts – bank loans, sale of assets
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Cash Discounts
 Cash discount or Sales discount is the amount a
customer can deduct from the amount owed for
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purchased merchandise if payment is made within a
certain time. This is to encourage customers to pay
 2/10, n/30 means 2% discount it paid within 10 days if not
the entire amount is due in 30 days.
1. Merchandise Sold X Discount Rate = Discount
= $30
2. Sales Slip Amount - Discount Amount = Amount Paid Within Discount Period
Payment from a Charge
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Cash Discount
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Cash Sales
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Bankcard Sales
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Other Sales
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