College Accounting, by Heintz and Parry

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Nick Flannery gave Eddie a general journal in which to put all entries. After a few days, Eddie realized that Nick was open to input about how to do his bookkeeping, so he suggested to Nick that the bookkeeping be done using special journals: journals designed for recording only certain kinds of t
College Accounting, by Heintz and Parry

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1. College Accounting, by Heintz and Parry Chapter 11: Accounting for Sales and Cash Receipts

2. Nick Flannery gave Eddie a general journal in which to put all entries. After a few days, Eddie realized that Nick was open to input about how to do his bookkeeping, so he suggested to Nick that the bookkeeping be done using special journals: journals designed for recording only certain kinds of transactions. For example, a Sales Journal would only be used for sales on account. Question: What are some advantages of using special journals?

3. Answer: Some of the advantages are: 1) special journals save time in the journalizing process, 2) special journals save a lot of time in the posting process (you?ll see how), 3) it can reduce the amount of training needed for inexperienced account clerks or bookkeepers, 4) it reduces the possibility of bookkeeping mistakes, 5) it can facilitate the gathering of some important monthly totals, and 6) in companies with multiple employees involved in the accounting process, it facilitates division of labor. Now let?s see how Eddie would put an entry into the Sales Journal, used only for sales on account. Details about this topic Supporting information and examples How it relates to your audience

4. At The CD Side of Town, Nick extends credit to a few disc jockeys who consistently purchase large quantities of compact discs. When Dan ?The Diss Jockey? Miller bought 15 CDs for $159.00, the 6% sales tax was $159 X 6% = $9.54. This amount is not revenue because it is a liability owed to the government, but the receivable amount includes the sale price and the tax (159.00 + 9.54 = 168.54). Special columns allow the whole entry to fit on one line. Sales Journal Page 1 Date To Whom Sold P.R. Accts. Sales Sales Tax Rec. Credit Payable Debit Credit 2000 Mar. 20 Dan Miller 168.54 159.00 9.54

5. At the end of the month, columns are totaled and proved (258.00 + 15.48 = 273.48). Like the combination journal, only the totals of special columns need to be posted to the general ledger. The numbers in parentheses below each column are the posting reference showing the account numbers where the totals were posted. The posting reference in the general ledger would be S1. Sales Journal Page 1 Date To Whom Sold P.R. Accts. Sales Sales Tax Rec. Credit Payable Debit Credit 2000 Mar. 20 Dan Miller 168.54 159.00 9.54 23 Nancy Smucci 104.94 99.00 5.94 273.48 258.00 15.48 (121) (411) (221)

6. At this point, you may be wondering why there is a posting reference column when all of the debit and credit columns are being posted as totals. The reason is that the business is using a separate Accounts Receivable Ledger to keep track of how much is owed to us by each of our individual customers. Each accounts receivable amount is posted individually to the customer?s account, and then a checkmark is put in the Posting Reference (P.R.) column. Sales Journal Page 1 Date To Whom Sold P. R. Accts. Sales Sales Tax Rec. Credit Payable Debit Credit 2000 Mar. 20 Dan Miller 168.54 159.00 9.54 23 Nancy Smucci 104.94 99.00 5.94 273.48 258.00 15.48 (121) (411) (221)

7. The Accounts Receivable Ledger looks like this. Each customer, in alphabetical order, has a page. Only one balance column is used because balances should be debits (or zero). In this ledger, you don?t post a debit and credit each time; you only post any debits or credits to accounts receivable. This is an example of a subsidiary ledger: a ledger that provides the detail behind one general ledger account. account Dan Miller Date Item P.R. Debit Credit Balance 2000 Mar. 20 S1 168.54 168.54

8. One week after his purchase, Dan ?The Diss Jockey? Miller found that a used CD he purchased was scratched. When he brought it back, Nick issued a credit memo, a document acknowledging that Dan didn?t owe for that CD anymore. At that point, the sale and receivable needed to come off of the books. Rather than debit sales, Eddie debited Sales Returns and Allowances, a contra revenue account that lets the company see if customers are returning a lot of merchandise. This entry doesn?t fit any special journals, so the general journal is used. The accounts receivable credit has two posting references because it is posted to two ledgers. Date Description P. R. Debit Credit 2000 Mar. 27 Sales Returns and Allowances 411.1 8.00 Sales Tax Payable 221 .48 Accounts Receivable/Dan Miller 121/ 8.48

9. Another ?special journal? Eddie uses is called the cash receipts journal. It is used for any receipt of cash by the business, so cash will always be debited in the entries. Eddie first used it to record cash register receipts from the opening weekend. Cash sales (including personal checks) were recorded as revenue and a sales tax liability. The ?Account Credited? column is only used to write the account title for the ?General Credit? or the customer name for the ?Acc. Rec. Credit.? General Acc.Rec. Date Account Credited PR Credit Credit 2000 Mar. 13 Sales Sales Tax Bank Credit Cash Credit Payable Cr. Card Exp Dr Debit 1655.00 99.30 1754.30

10. The cash register also contained records of sales paid for with a credit card (like MasterCard or Visa). When recording these sales, Eddie had to take the total sales with tax (1820.00 + 109.20 = 1929.20) and multiply it by 4% (1929.20 X 4% =77.17). The credit card companies will keep this amount as their revenue on the sale, and The CD Side of Town only gets the difference (1929.20 - 77.17 = 1852.03) added to its bank account. The $77.17 is recorded as Bank Credit Card Expense. General Acc.Rec. Date Account Credited PR Credit Credit 2000 Mar. 13 13 Sales Sales Tax Bank Credit Cash Credit Payable Cr. Card Exp Dr Debit 1655.00 99.30 1754.30 1820.00 109.20 77.17 1852.03

11. When Dan Miller paid off his account, that entry also went into the cash receipts journal. Because of his return, he owed 168.54 - 8.48 = 160.06. The entry looked like this: Cash Receipts Journal Page 1 General Acc.Rec. Date Account Credited PR Credit Credit 2000 Mar. 13 13 31 Dan Miller 160.06 Sales Sales Tax Bank Credit Cash Credit Payable Cr. Card Exp Dr Debit 1655.00 99.30 1754.30 1820.00 109.20 77.17 1852.03 160.06

12. Totaling, ruling, proving, and posting this journal is similar to the other special journals. The proof is as follows: Credits = 160.06 + 3475.00 + 208.50 = 3843.56 Debits = 77.17 + 3766.39 = 3843.56 The posting reference for ?General Credits? would be an account number in the PR column. The checkmark indicates posting to Dan Miller?s account in the Accounts Receivable Ledger. Cash Receipts Journal Page 1 General Acc.Rec. Date Account Credited PR Credit Credit 2000 Mar. 13 13 31 Dan Miller 160.06 160.06 (121) Sales Sales Tax Bank Credit Cash Credit Payable Cr. Card Exp Dr Debit 1655.00 99.30 1754.30 1820.00 109.20 77.17 1852.03 160.06 3475.00 208.50 77.17 3766.39 (411) (221) (533) (111)

13. The Accounts Receivable Ledger for Dan Miller looked like this by March 31. Notice the posting reference from Cash Receipts Journal page 1. account Dan Miller Date Item P.R. Debit Credit Balance 2000 Mar. 20 S1 168.54 168.54 27 J1 8.48 160.06 31 CR1 160.06 ----------

14. At this point, Eddie did a Schedule of Accounts Receivable (a listing of all accounts receivable ledger balances) to see if all accounts receivable transactions were posted properly to the accounts receivable ledger and the general ledger. Since the total of this report matched the accounts receivable balance in the general ledger, he was satisfied. The CD Side of Town Schedule of Accounts Receivable Mar. 31, 2000 Nancy Smucci 104.94 Total 104.94

15. As a final review of this chapter, answer the following questions: Question: 1) What types of transactions should be documented in a sales journal? 2) What types of transactions should be documented in a cash receipts journal? 3) What new type of transaction discussed in this chapter would be documented in a general journal?

16. Answers: 1) The sales journal is for sales on account. 2) The cash receipts journal is for any entry where cash is received. 3) Sales returns are documented in the general journal. Details about this topic Supporting information and examples How it relates to your audience


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