Chapter 10: Journalizing Sales and Cash Receipts Using Special Journals

1. Chapter 10: Journalizing Sales and Cash Receipts Using Special Journals

2. 10-1: Journalizing Sales on Account Using a Sales Journal • Customer: person or business to whom merchandise or services are sold • Individuals, schools, churches, etc. • Sales tax: tax on sale of merchandise or services • Rates usually stated as percentage of sales • Amount of sales tax collected is a business liability until paid to the government agency

3. 10-1: Journalizing Sales on Account Using a Sales Journal • Sale of merchandise may be on account or for cash • Increases revenue of business • Regardless of when payment is made, revenue should be recorded at time of sale, not date cash is received • Accounting concept Realization of Revenue • Sale on account: Sale for which cash will be received at a later date • Also known as charge sale • Total due from all charge customers in general ledger account titled Accounts Receivable

4. 10-1: Journalizing Sales on Account Using a Sales Journal • Sales journal: special journal used to record only sales of merchandise on account • Special amount columns in this sales journal are: • Accounts Receivable Debit • Sales Credit • Sales Tax Payable Credit • When merchandise is sold on account, seller prepares form showing what has been sold, known as a sales invoice • Includes goods or services sold, quantity, and price • Also known as sales ticket or sales slip • Same invoice is considered by customer to be purchase invoice

5. 10-1: Journalizing Sales on Account Using a Sales Journal • Three copies of sales invoice prepared • Copy given to customer • Copy given to shipping department of selling company • Copy used a source document for sale • Sale recorded at time sale is made • Accounts Receivable has normal debit balance • Debited for total of sales and sales tax to show increase • Sales has normal credit balance • Credited for price of goods to show increase in revenue account • Sales tax payable has normal credit balance • Credited for amount of sales ta to show increase in this liability account

6. The Sales Journal • For sales on account • Source document: Sales Invoice • Total Sales Invoice amount = Sales + Sales Tax Page 273 November 3. Sold merchandise on account to Village Crafts, $540.00, plus sales tax, $32.40; total, $572.40. Sales Invoice No 76.

7. PRACTICE: • 10-1 WT – Textbook page 274, WP page 225 • 10-1 OYO – Textbook p. 274, WP page 226

8. 10-2: Journalizing Cash Receipts Using a Cash Receipts Journal • Cash sale: Sale in which cash is received for total amount of sale at time of transaction • Credit care sale: sale in which credit card used for total amount of sale at time of transaction • VISA, MasterCard, and Discover Card • Customer who uses credit car promises to pay amount due for credit card to bank issuing the credit card

9. 10-2: Journalizing Cash Receipts Using a Cash Receipts Journal • Cash register prints summary of sales recorded at end of each day • used for journalizing sales transaction, but can’t provide business with information about what merchandise was sold and when, or to which customers • Point-of-sale (POS) terminal: computer used to collect, store, and report all information of sales transaction • When processing sale, sales clerk uses scanning device to scan universal product code (UPC) symbol on item • POS terminal matches number represented by UPC symbol with merchandise number to obtain description and price of merchandise

10. 10-2: Journalizing Cash Receipts Using a Cash Receipts Journal • Terminal summary: Report summarizing cash and credit card sales of point-of-sale terminal • Used as source document for recording sales in journals • POS can provide following information: • Report sales by sales clerk • Report of sales by time of day • Report of merchandise having quantity on hand below a predetermined order • Page 277

11. 10-2: Journalizing Cash Receipts Using a Cash Receipts Journal • Batch report: report of credit card sales produced by point-of-sale terminal • can show each credit card sale or provide summary of number and total sales by credit card type • Batching out: process of preparing batch report of credit card sales from point-of-sale terminal • bank combines batch reports of customers and submits to nearest Federal Reserve Bank • Funds transferred among banks issuing credit cards, similar to way checks are transferred between banks

12. 10-2: Journalizing Cash Receipts Using a Cash Receipts Journal • Sales discount: cash discount on sales taken by customer and offered by seller to encourage early payment • Customer pays less than invoice amount previously recorded in sales account • Reduces amount of cash seller receives on sales on account • Special column titled “Sales Discount Debit” • Debit because this takes away from sales, which has a normal credit balance

13. 10-2: Journalizing Cash Receipts Using a Cash Receipts Journal • Total of terminal summary recorded as single cash sales transaction • POS terminal assigns summary a sequential number and used as source document (Objective Evidence) • Cash has normal debit balance • Debited for total sales and sales tax to show increase in asset account • Sales has normal credit balance • Credited for total price of all goods sold to show increase in revenue account • Sales tax payable has normal credit balance • Credited for total sales tax to show increase in liability account • Check mark in Acct. Title and Post Ref. Column

14. The Cash Receipts Journal: Cash and Credit Card Sales • For cash and credit card sales • Source document: Terminal Summary (TS) • Total Cash = Sales + Sales Tax Payable Page 279 November 4. Recorded cash and credit card sales, $5460.00, plus sales tax, $327.60; total, $5787.60. Terminal Summary 34.

15. PRACTICE: • 10-2 WT - Textbook page 284, WP page 227 • Oct. 13th transaction

16. 10-2: Journalizing Cash Receipts Using a Cash Receipts Journal • Cash receipt on account transaction decreases future amounts to be collected from customer • Increases cash account balance and decreases accounts receivable account balance • Cash has normal debit balance • Debited for amount of cash received to show increase in asset account • Accounts receivable account has normal debit balance • Credited to show decrease in asset account

17. The Cash Receipts Journal: Cash Receipts on Account • For cash received to pay an accounts receivable • The sale has already been recorded on the Sales Journal • Source document: Receipt (R) • Total Cash = Sales + Sales Tax Payable Page 280 November 6. Received cash on account from Country Crafters, $2162.40, covering S69. Receipt No. 90

18. PRACTICE: • 10-2 WT - Textbook p. 284, WP page 227 • Oct. 4th transaction

19. 10-2: Journalizing Cash Receipts Using a Cash Receipts Journal • Deduction vendor allows on invoice amount to encourage prompt payment is known as cash discount • Cash discount on sales is a sales discount • Customer pays less in cash than invoice amount says and was previously recorded in sales account • “2/10, n/30” • Customer gets 2% discount when they pay amount owed within 10 days • Otherwise, net amount is due in 30 days • Sales Discount account provides business managers with more information to evaluate whether sales discount is cost-effective method of encouraging early payments of sales on account

20. The Cash Receipts Journal: Cash Receipts on Account with Sales Disc’t • For cash received to pay an accounts receivable • The sale has already been recorded on the Sales Journal • A discount has been given to encourage payment • Source document: Receipt (R) • Total Cash = Accounts Receivable – Sales Disct Page 282 November 7. Received cash on account from Cumberland Center, $1,176.00, covering sales invoice no. 74 for $1,200.00, less 2% discount, $24.00. Receipt No. 91.

21. PRACTICE: • 10-2 WT - Txtbk p. 284, WP p. 227 • Oct. 30thtransaction • 10-2 OYO!!