Chapter 10
Cash Receipts and
Cash Payments
1
College Accounting
10th Edition
McQuaig
McQuaig
Bille
Bille
Nobles
PowerPoint presented by Douglas Cloud
Professor Emeritus of Accounting, Pepperdine University
10–1
© 2011 Cengage Learning
Credit Terms
 The credit period is the time the seller allows the buyer
before full payment has to be made.
 A cash discount is an amount that a customer can
deduct if a bill is paid within a specified time.
 The discount is based on the total amount of the invoice
after any returns and allowances and freight charges on
the invoice have been deducted.
 1/15, n/60: The seller offers a 1 percent discount if the
bill is paid within 15 days after the invoice date.
 2/10, EOM, n/60: The seller offers a 2 percent discount if
the bill is paid within 10 days after the end of the month,
and the whole bill must be paid within 60 days after the
last day of the month.
10–2
Sales Discounts
Transaction (b). On August 10, received check from
Mesa River Raft Company for $1,894.83 in payment of
invoice no. 9384, less discount of $38.67.
$1,933.50 x .02
10–3
Sales Discounts
10–4
Sales Returns
Transaction (a). On September 1, Whitewater Raft
Supply sold merchandise on account to Rugged River
Company, $3,614, invoice no. 9391, terms 2/10, n/30.
10–5
Sales Returns
Transaction (b). On September 5, Rugged River
Company returned $254 worth of the merchandise.
Whitewater Raft Supply issued credit memorandum no.
1069 and recorded the transaction.
10–6
Sales Returns
Transaction (c). On September 8, received a check
from Rugged River Company for $3,292.80 in payment
of invoice no. 9391, less return and cash discount.
($3,614 ‒ $254) x .02
10–7
Sales Returns
10–8
No Sales Discount Involved
Transaction (a). On April 1, Blue Merchandise
Company sold merchandise on account to Yellow
Company, invoice no. 1294, $9,540, terms 2/10, n/30,
and recorded the sale in the general journal.
10–9
No Sales Discount Involved
Transaction (b). On April 26, received check from
Yellow Company for $9,450 in payment of invoice no.
1294.
Since Yellow Company did not make
payment within 10 days, the discount was
not applied to the invoice amount.
10–10
Posting to the General Ledger and Subsidiary
Ledger—A Computerized Approach
 Most computer accounting software allows businesses to post
cash receipts for sales and apply discounts.
 Here, cash
receipt of
$1,894.83 in
payment of
invoice no.
9384 is
recorded
into the
accounting
software.
10–11
 The accountant records the discount into the system.
10–12
 After the discount has been applied, the invoice now
shows as paid, and the balance due is $0.00.
10–13
Purchase Discounts
 The Purchase Discounts account, like
Purchases Returns and Allowances, is a
contra account.
 The Purchase Discounts account is treated
as a deduction from Purchases on the
buyer’s income statement.
10–14
Purchase Discounts
Transaction (a). On August 2, Whitewater Raft Supply
bought merchandise on account from Pataponia, Inc.,
invoice no. 2706, $1,710; terms 2/10, n/30; dated July
31; FOB San Francisco, freight prepaid and added to the
invoice, $85.50.
10–15
Purchase Discounts
Transaction (b). On August 8, issued Ck. No. 2076 to
Pataponia, Inc., in payment of invoice no. 2706, less
cash discount of $34.20, $1,761.30.
The cash payment was determined as
follows: $1,710 ‒ $34.20 + $85.50
(continued)
$1,710 x .02
10–16
Purchase Discounts
10–17
No Purchase Discounts Involved
Transaction (a). On November 1, Blue Merchandise
Company bought merchandise on account from Grey,
Inc., invoice no. 3901, $4,600; terms 2/10, n/30, dated
October 31.
10–18
No Purchase Discounts Involved
Transaction (b). On November 28, issued Ck. No. 1151
to Grey, Inc., in payment of invoice no. 3901, $4,600.
10–19
Computerized Approach to Posting
 The accountant records the payment of the invoice
by selecting the correct invoice due.
Computerized Bill Payment
 The bill payment check screen shows that
payment has been applied to the invoice.
Partial Income Statement
10–22
Trade Discounts
 Manufacturers and wholesalers publish catalogs listing
their products at retail prices.
 These organizations offer their customers substantial
reductions, called trade discounts, from the list prices.
 Trade discounts are not journalized because they are
not related to cash payments.
 Manufacturers and wholesalers use trade discounts to
avoid the high cost of reprinting catalogs when selling
prices change.
 Neither the seller nor the buyer records trade discounts
in the accounts; they enter only the selling price.
10–23
Trade Discounts as a
Chain of Percentages
A distributor of automobile parts grants discounts
of 30 percent, 10 percent, and 10 percent off the
listed catalog price of $900.
List or catalog price
$900.00
Less 1st trade discount of 30%
270.00
Remainder after 1st discount $630.00
Less 2nd trade discount of 10%
63.00
Remainder after 2nd discount$567.00
Less 3rd trade discount of 10%
56.70
Selling price
$510.30
10–24
Seller’s Transactions
Buyer’s Transactions
10–25
Purchases and Sales Transactions
10–26
The Cash Receipts Journal
 A cash receipts journal contains all
transactions in which cash is received, or
increased.
 When a cash receipts journal is used, all
transactions in which cash is debited must
be recorded in it.
 A cash receipts journal may be used for a
service as well as a merchandising business.
10–27
Cash Receipts in the General Journal
Oct. 1
Sold merchandise on account to Green River
Rafts, invoice no. 10050, $3,500; terms 2/10, n/30.
10–28
Cash Receipts in the General Journal
Oct. 4
Sold merchandise, $500, and the customer used
a credit card. The bank charges 4 percent for
credit card transactions.
$500 x .04
10–29
Cash Receipts in the General Journal
Oct. 5 Collected cash on account from I. R. Ray, a charge
customer, $416.
10–30
Cash Receipts in the General Journal
Oct. 8 Sold equipment for cash at cost, $500.
10–31
Cash Receipts in the General Journal
Oct. 10 Received a check from Green River Rafts for
$3,430 in payment of invoice no. 10050, less
cash discount.
$3,500 x .02
10–32
Cash Receipts in the General Journal
Oct. 15 Cash sales for first half of the month, $2,460.
10–33
Cash Receipts Journal
 Now, let’s record the same transaction that impact cash
receipts in a cash receipts journal.
 The entry of October 1 does not involve cash, so it is
not entered in the cash receipts journal.

Cash was received on October 4, so the sale of
merchandise involving a credit card is entered in the
cash receipts journal.
10–34
Cash Receipts Journal
 Notice that the entry was easier to journalize using the
special journal.
 On October 5, $416 was collected on account from L.R.
Ray, a charge customer.
The “Account Credited” column is used to identify
the customer who made the payment.
10–35
Cash Receipts Journal
Identifying Accounts Receivable in the “Account
Credited” column would provide no additional
information since the special column, “Accounts
Receivable Credit” provides this information.
10–36
Cash Receipts Journal
 On October 7, the owner, D. M. Bruce, invested $9,000
in the business.
In this entry, the “Account Credited” column is used to
identify the $9,000 in “Other Accounts Credit” credit as
a credit to D. M. Bruce, Capital for $9,000.
10–37
Cash Receipts Journal
10–38
Cash Receipts Journal
Here are some other transactions made during the month
that involved cash.
Oct. 16
17
21
30
31
Received a check from Floyd Mercantile for
$1,366.12 in payment of invoice no. 10052, less cash
discount ($1,394.00 – $27.88 = $1,366.12).
Borrowed $9,000 from the bank, receiving cash and
giving the bank a promissory note.
Received check from Hartman Guides for $3,696.80
in payment of invoice no. 10055, less discount
($3,772.24 – $75.44 = $3,696.80).
Received a check from Bowers River Co. for $1,710.00 in
payment of invoice no. 10054. (This is longer than the 10day period, so the cash discount is not allowed.)
Cash sales for second half of the month, $2,620.
10–39
Cash Receipts Journal
Notes Payable is used instead of Accounts Payable because a
promissory note was issued.
10–40
Posting from the Cash
Receipts Journal
10–41
Proving the Cash Receipts
Journal Totals
Debit Totals
Credit Totals
Cash
$34,678.92 Accounts Receivable
Credit Card
Sales
Expense
20.00 Other Accounts
Sales Discounts
173.32
$34,872.94
$10,792.24
5,580.00
18,000.00
$34,872.24
10–42
Advantages of Using a Cash
Receipt Journal
1. Transactions generally can be recorded on one
line.
2. All transactions involving debits to Cash are
recorded in one place.
3. It eliminates much repetition in posting when
there are numerous transactions involving Cash
debits.
4. Special columns can be used for specialized
transactions and posted as one total.
10–43
The Cash Payments Journal
 The cash payments journal is a special
journal used to record all transactions in which
cash goes out, or decreases.
 When the cash payments journal is used, all
transactions in which cash is credited must be
recorded in it.
 The cash payments journal may be used for
either a service or a merchandising business.
10–44
Cash Payments Journal
Oct. 2
Bought merchandise on account from Pataponia,
Inc., invoice no. 2746, $2,500; terms 2/10, n/30;
dated September 30; FOB San Francisco, freight
prepaid and added to the invoice, $100.25.
No cash is involved in this transaction, so the entry is not recorded
in the cash payments journal.
10–45
Cash Payments Journal
Oct. 8 Issued Ck. No. 2226 to Pataponia, Inc., in payment
of invoice no. 2730, less cash discount of $50.00,
$2,550.25.
Oct. 10 Paid cash for liability insurance, Ck. No. 2227,
$4,890.
10–46
Cash Payments Journal
Oct. 12 Paid wages for two weeks, Ck. No. 2228, $6,220.
Oct. 14 Paid rent for the month, Ck. No. 2229, $2,950.
10–47
10–48
Cash Payments Journal
$21,125.25
=
$21,125.25
10–49
Proving the Cash Payments
Journal Totals
Debit Totals
Credit Totals
Accounts Payable $ 5,004.25 Cash
Other Accounts
16,121.00 Purchases Discounts
$21,125.25
$21,060.97
64.28
$21,125.25
10–50
Advantages of Using a Cash
Payments Journal
1. Transactions generally can be recorded
on one line.
2. All transactions involving credits to Cash
are recorded in one place.
3. It eliminates much repetition in posting
when there are numerous transactions
involving Cash credits.
4. Special columns can be used for
specialized transactions and posted as
one total.
10–51
Using Special Journals
Recommended Order of Posting
1. Sales journal
2. Purchases journal
3. Cash receipts journal
4. Cash payments journal
10–53