Accounting for a Merchandising Business:
Sales and Cash Receipts
Chapter 8
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Learning Objectives
1. Describe procedures and forms used in
selling merchandise.
2. Record sales of merchandise in a sales
journal and post to the general ledger
and the accounts receivable ledger.
3. Record sales returns and allowances.
4. Record sales discounts.
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Learning Objectives
5. Record cash receipts in a cash receipts
journal and post to the general ledger
and the accounts receivable ledger.
6. Prepare a schedule of accounts
receivable.
7. Record credit card sales.
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Just as a merchandising business follows certain
procedures to process and record purchases, they
follow certain procedures to process and record
sales
Procedures used depend on the business’s
 Type
 Size
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Cash basis
 No credit is allowed
 Terms of sale are cash or net cash
Credit period — a certain period of time in which to
make payment
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Revolving charge plan, in which customers pay
 Percentage of their account
 Finance charges on a monthly basis
n/EOM — payment for goods must be made by the end
of the month in which the credit purchase was made
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Learning Objective 1
Describe the procedures and forms
used in selling merchandise
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The process for a sale on credit starts in one of two ways
Receipt of a purchase order from a customer
Preparation of a sales order by one of the firm’s
salespersons
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A document
prepared when an
order is received
from a customer that
serves as an
additional record of
the sale and
identifies the
salesperson who
handled the sale.
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Credit department — approves sales order
Billing department — prepares sales invoice and copies
of sales invoice
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Sales ticket or sales slip — a commonly used form for
cash sales
Cash register tape — a variation of the sales ticket
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Learning Objective 2
Record sales of merchandise in a sales
journal and post to the general ledger and
the accounts receivable ledger
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A revenue account used to record the price of
merchandise sold to customers
A temporary account with a normal credit balance
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Cash sales are recorded by
Debiting Cash
Crediting Sales
+ asset
+revenue
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Credit sales are recorded by
Debiting Accounts Receivable
Crediting Sales
+ asset
+revenue
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Review Quiz 8-1
Record this transaction in general journal form.
a) Sold merchandise for cash, $400.
General Journal
Date
(a)
Account Title
Cash
P.R.
Debit
Credit
400
Sales
400
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Review Quiz 8-1
Record this transaction in general journal form.
b) Sold merchandise on account, $1,200.
General Journal
Date
(b)
Account Title
Account Receivable
Sales
P.R.
Debit
Credit
1200
1200
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Review Quiz 8-1
Record this transaction in general journal form.
c) Sold equipment (at cost) that was no longer needed
by the business, $800.
General Journal
Date
(c)
Account Title
Cash
P.R.
Debit
Credit
800
Equipment
800
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Review Quiz 8-1
Record this transaction in general journal form.
d) Sold supplies at cost to a competitor, $200.
General Journal
Date
(d)
Account Title
Cash
P.R.
Debit
Credit
200
Supplies
200
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A special journal used only to record credit sales of
merchandise
Has only one money column, entitled Accounts
Receivable Debit and Sales Credit
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Quick Check
For a company using special journals, merchandise
sold on account should be recorded in the
a. cash receipts journal.
b. cash payments journal.
c. sales journal.
d. purchases journal.
e. general journal.
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An account for each credit customer
Normal debit balances
A subsidiary ledger with a controlling account — the
Accounts Receivable account
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Each sales journal entry is posted separately to the
accounts receivable ledger.
Posting is usually done on a daily basis.
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At the end of the month
The money column of the sales journal is totaled
The total is posted twice, as a
 Debit to the Accounts Receivable account
 Credit to the Sales account
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Quick Check
Individual sales to customers recorded in the sales
journal are
a. posted to the general ledger daily.
b. posted to the accounts receivable ledger monthly.
c. posted to the general ledger monthly.
d. posted to the accounts receivable ledger daily.
e. not posted.
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Review Quiz 8-2
Sales Journal
Date
Invoice
No.
20X5
1
May
1
Customer’s Name
P.R.
Accts. Rec. Dr.
Sales Cr.
Bill French
300
General Journal
Date
20X5
May
Account Title
3
Cash
P.R.
Debit
Credit
500
Sales
500
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Review Quiz 8-2
8
2
Lee Smith
800
18
3
Leah King
590
30
4
Charles Swift
500
2190
Total
31
12 Cash
670
Sales
670
25 Cash
4000
Store Equipment
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4000
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Learning Objective 3
Record sales returns and allowances
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A return results when a buyer returns part, or all, of a
purchase to the seller.
An allowance results when a buyer decides to keep
damaged or defective goods, but at a reduction from
the original price.
On the books of the seller, a return or allowance is
recorded as a reduction in sales revenue.
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A contra revenue account
Has a debit balance that is opposite the credit balance
of the Sales account
Contra
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Indicates that the
seller has decreased
the customer’s
account and does
not expect payment
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Review Quiz 8-3
Record the following transactions in general journal
form.
a) Sold merchandise on account to Camp Company,
$800.
General Journal
Date
(a)
Account Title
Accounts Receivable –
Camp Company
Sales
P.R.
/
Debit
Credit
800
800
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Review Quiz 8-3
Record the following transactions in general journal
form.
b) Issued a credit memorandum for $200 to Camp
Company for merchandise damaged while in
transit.
General Journal
Date
(b)
Account Title
P.R.
Sales Returns and Allowances
Accounts Receivable –
Camp Company
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Debit
Credit
200
/
200
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Review Quiz 8-3
Record the following transactions in general journal
form.
d) Received the balance of Camp Company’s account.
General Journal
Date
(d)
Account Title
P.R.
Cash
Debit
Credit
600
Accounts Receivable –
Camp Company
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600
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Review Quiz 8-3
Record the following transactions in general journal
form.
c) Issued a cash refund to Rossi and Sons, $400.
General Journal
Date
(c)
Account Title
Sales Returns and
Allowances
Cash
P.R.
Debit
Credit
400
400
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Learning Objective 4
Record sales discounts
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Used to record cash discounts granted to credit
customers for prompt payment
A contra revenue account with a normal debit balance
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Quick Check
The Sales Discounts account
a. has a normal credit balance.
b. is a contra revenue account.
c. is a liability account.
d. is an asset account.
e. is a permanent account.
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Review Quiz 8-4
On the books of Wachal Company
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Review Quiz 8-4
On the books of Entler Company
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Learning Objective 5
Record cash receipts in a cash receipts
journal and post to the general ledger and
the accounts receivable ledger
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A special journal
Where all transactions that increase the amount of
cash are recorded
Must contain a Cash Debit column
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Other columns may include
 Sales Discount Debit column
 Accounts Receivable Credit column
 Sales Credit column
A General Credit column for making credits to accounts
for which no special column is provided
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Three types of postings made from the cash receipts
journal
1. Amounts in Accounts Receivable Credit column
posted separately to customers’ subsidiary ledger
accounts
2. Amounts in General Credit column posted to the
general ledger accounts identified in the Account
Credited column
3. Special column totals posted to general ledger
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Quick Check
A Sales Discounts Debit column would appear in the
a. cash payments journal.
b. cash receipts journal.
c. purchases journal.
d. sales journal.
e. general journal.
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Review Quiz 8-5
Referring to the cash receipts journal used by
Lakeside Electronics in Figure 8-10 (pages 346–347),
identify the meaning of the check marks located in
each of the following positions:
a) Under the General Credit column total
Answer :
a) The column total is not posted
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Review Quiz 8-5
Referring to the cash receipts journal used by
Lakeside Electronics in Figure 8-10 (pages 346–347),
identify the meaning of the check marks located in
each of the following positions:
b) In the P.R. column on the line on which a
customer’s account is credited
Answer :
b) Posting is made to the customer’s account in the
accounts receivable ledger
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Review Quiz 8-5
Referring to the cash receipts journal used by
Lakeside Electronics in Figure 8-10 (pages 346–347),
identify the meaning of the check marks located in
each of the following positions:
c) In the P.R. column on the line on which the Sales
account is credited (on November 30)
Answer :
c) An individual posting is not necessary; the amount
will be posted as part of the column total
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Learning Objective 6
Prepare a schedule of accounts receivable
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Prepared after all posting has been completed
To check posting accuracy
Lists all of the balances in the accounts receivable
ledger
Schedule’s total compared with the balance of the
Accounts Receivable controlling account in the general
ledger
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The schedule
total and the
balance of the
Accounts
Receivable
controlling
account
should agree.
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Quick Check
The schedule of accounts receivable total should agree
with the
a. total of the accounts payable schedule.
b. Accounts Payable account in the general ledger.
c. Accounts Receivable account in the general ledger.
d. Sales account in the general ledger.
e. Purchases account in the general ledger.
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Most state governments and some county and city
governments level a tax on the retail price of goods
and services sold to the end user.
The tax is called a sales tax and is collected from
customers by the seller and later paid to the
appropriate tax official in the state government.
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Liability account
Used to record sales taxes on retail purchases
+ asset
+ liability
+revenue
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If a customer returns merchandise on which a sales tax
was charged, the amount of sales tax must be returned
to the customer.
+ contra
revenue
- liability
- asset
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Review Quiz 8-6
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Review Quiz 8-6
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Review Quiz 8-6
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Learning Objective 7
Record credit card sales
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Those issued by
Banks (referred to as bank credit cards), such as VISA
and MasterCard
Private companies (referred to as nonbank credit
cards) such as American Express and Diners Club
Department stores and oil companies, such as Macy’s
and ExxonMobil
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Recorded as cash sales because credit card receipts
can be deposited in a bank immediately
Discount (fee) that ranges from 3% to 7% deducted by
bank
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The discount is recorded in an expense account
entitled Credit Card Expense.
Credit Card Expense is an expense account that is used
to record discounts paid when receipts for credit card
sales are deposited with the bank that issued the card.
+ asset
+ expense
+ revenue
+ liability
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An account entitled Accounts Receivable — Credit Card
is used to record the amount due from nonbank credit
card sales.
+ asset
+ expense
+ revenue
+ liability
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Review Quiz 8-7
a) Sold merchandise, $1,000, and accepted a VISA
card (assume a discount rate of 4%).
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Review Quiz 8-7
b) Sold merchandise, $400, and accepted a nonbank
credit card (assume a discount rate of 5%).
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Review Quiz 8-8
Identify the journal in which each of the following
transactions would be recorded:
Transaction
cash sale of merchandise
credit purchase of equipment
owner withdrawal of cash
credit sale of merchandise
receipt of cash from a customer
adjusting entries
cash sale of supplies
closing entries
cash purchase of merchandise
Journal
cash receipts journal
general journal
cash payments journal
sales journal
cash receipts journal
general journal
cash receipts journal
general journal
cash payments journal
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Focus on Ethics
Refer to the Focus on Ethics box on page 359 in your
text.
What internal control techniques could have
prevented this retail store larceny?
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Joining the Pieces Merchandising Transactions
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Joining the Pieces Merchandising Transactions
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