MGMT 101 - Chapter 10 Accounting for Sales and Cash Receipts
What are four (4) possible credit terms that can be offered by a business?
1) 2% discount off sales price if paid within 10 days, total amount due within 30 days (i.e., 2/10, n/30) 2) 1% discount off sales price if paid within 15 days, total amount due within 60 days (i.e., 1/15, n/60) 3) 2% discount if paid before end of month, Total amount due within 60 days (i.e., 2/eom, n/60) 3% discount if paid within 10 days after end of month, total amount due within 90 days (i.e., 3/10 eom, n/90)
What are the two (2) correct journal entries if merchandise is sold for $100 with credit terms of 2/10, n/30 and cash is received from the buyer within the discount period?
1) At the time of the sale: D -> Accounts Receivable/Customer Name $100 C -> Sales $100 {Description "Made sale on account"} 2) At the time of cash receipt: D -> Cash $98.00 D-> Sales Discounts $2.00 C -> Accounts Receivable/Customer Name $100.00 {Description "Received cash on account"} [Note: Net Sales = Credit Sale Amount - Cash Discount Amount = Cash Collection]
When merchandise has been returned, the sales discount is calculated on the sale amount after deducting the return; If a sale was made for $100 with credit terms of 2/10, n/30 and cash is received within the discount period and if $30 of merchandise is returned what are the two (2) correct journal entries required?
1) At the time of the sales return: D -> Sales Returns and Allowances $30 C -> Accounts Receivable/Customer Name $30 {Description "Returned merchandise"} 2) At the time of cash receipt: D -> Cash $68.60 D -> Sales Discounts $1.40 C -> Accounts Receivable/Customer Name $70.00 {Description "Received cash on account"}
What are three (3) common types of cash receipts from sales?
1) Cash Sales (i.e., sales in which the customer pays cash are entered in the general journal at the time of sale with the following entry D => Cash C=> Sales {Description "Made cash sales"} 2) Collections on account (i.e., sales on account lead to cash receipts which are entered in the general journal at the time of sale with the following entry: D => Accounts Receivable/ Customer Name C => Sales Description "Made credit sale" and at the time of cash collection with the following entry: D => Cash C => Accounts Receivable/ Customer Name {Description "Received cash on account"} 3) Bank credit card sales (i.e., sales in which the customer uses a bank credit card which is similar to cash sales because the cash is available to the business as soon as an electronic deposit is made by the credit card company for the gross amount of credit card sales less a processing fee which is based on the gross amount of the sale, including the sales tax, at the end of the day) are entered in the general journal at the time of sale with the following entry: D => Cash D => Bank Credit Card Expense C => Sales C => Sales Tax Payable {Description "Made credit card sale"}
What are two (2) key accounting documents for a retailer?
1) Cash register tapes 2) Sales tickets
What are five (5) steps required to post cash receipts to the accounts receivable ledger?
1) Enter the date of the sales transaction in the Date column 2) Enter the amount of the debit or credit in the Debit or Credit column 3) Enter the new balance in the Balance columns under Debit or Credit 4) Enter the journal page number from which each transaction is posted in the Posting Reference column 5) Enter a slash (/) followed by a check mark (✓) in the Posting Reference column of the journal for each transaction that is posted to accounts receivable ledger
What are some common items that a merchandise business may sell?
Clothing, cabinets, computers, etc.
What customers are not included in the schedule of accounts receivable?
Customers whose account balance is zero are not included
What is the correct journal entry if a credit sale is made for $100 plus 5% sales tax?
D -> Accounts Receivable/Customer Name $105 C -> Sales $100 C-> Sales Tax Payable $5 Description "Made credit sale" [Note: If sale is made in state where sales tax is not imposed on certain merchandise sold (i.e., unprepared food in the state of New Mexico) the correct journal entries for the transactions above would not include the credit to the Sales Tax Payable account (i.e., D -> Cash $100 C -> Sales $100 OR D -> Accounts Receivable/Customer Name $100 C -> Sales $100)]
What is the correct journal entry if a cash sale is made for $100 plus 5% sales tax?
D -> Cash $105 C -> Sales $100 C -> Sales Tax Payable $5 Description "Made Cash Sale"
Received cash on account from Enrico Lorenzo for total amount owed of $1596.00
D -> Cash $1596.00 C -> Accounts Receivable/E. Lorenzo $1596.00 Description "Received cash on account"
Bank Credit card sales for the month are $2,500 plus tax of $125, and bank credit card expenses on these sales are $100
D -> Cash $2,525 D -> Bank Credit Card Expense $100 C -> Sales $2500 C Sales Tax Payable $125 Description "Made credit card sales"
Cash sales for the month are $3,600 plus tax of $180
D -> Cash $3780.00 C -> Sales $3,600.00 C -> Sales Tax Payable $180.00 Description " Made cash sales"
Received cash on account from Brenda Myers for total amount owed of $462.00
D -> Cash $462.00 C -> Accounts Receivable/B. Myers $462.00 Description "Received cash on account
What is the correct journal entry if merchandise purchased for $100 with 5% sales tax that was purchased on credit was returned to the merchandising business?
D -> Sales Returns and Allowances $100 D -> Sales Tax Payable $5 C -> Accounts Receivable/Customer Name $105 Description "Returned merchandise -- Credit Memo ##" [Note: Sales Returns and Allowances is debited for the amount of the sale, excluding the sales tax; Sales Tax Payable is debited separately for the sales tax on the original sale amount; Accounts Receivable is credited for the total amount originally billed to the customer]
What is a credit memorandum (i.e. credit memo)?
Document issued when credit is given for merchandise return or for an allowance [Note: This document is called a credit memo because the customer's account receivable is credited to reduce the amount the customer owes the business]
What is the relationship between the journal, the AR ledger, and Accounts Receivable account in general ledger?
Entries in the general journal are posted to the general ledger and accounts receivable ledger. After the posting to accounts receivable ledger and Accounts Receivable account in general ledger is completed, totals of the accounts receivable ledger which are summarized in the Schedule of Accounts Receivable should equal the balance of the Accounts Receivable account in the general ledger (i.e., Schedule of Accounts Receivable is a summary of the accounts receivable ledger which is composed of the same information summarized in the Accounts Receivable account in the general ledger)
$_____ is the amount of the _____ to the Accounts Receivable account if $25 of merchandise is returned for a credit on account (assuming 6% sales tax rate) and $_____ is the amount of the _____ to the Sales Returns and Allowances account and $_____ is the amount of the _____ to the Sales Tax Payable Account
$25.00 debit Sales Returns&Allowances $ 1.50 debit Sales Tax Pay. $26.50 credit AR
$_____ is the amount of the _____ to the Accounts Receivable account if a credit sale of $250 occurs (assuming 6% sales tax rate) and $_____ is the amount of the _____ to the Sales account and $_____ is the amount of the _____ to the Sales Tax Payable account
$265 debit AR $250 credit Sales Rev $15.00 credit Sales Tax Pay.
What is the accounts receivable ledger? A: Separate ledger containing an individual account receivable for each customer (i.e., used to ensure business has a complete record of the account receivable from individual customers) Q: What are five (5) steps required to post sales transaction to the accounts receivable ledger?
1) Enter the date of the sales transaction in the Date column 2) Enter the amount of the debit or credit in the Debit or Credit column 3) Enter the new balance in the Balance columns under Debit or Credit 4) Enter the journal page number from which each transaction is posted in the Posting Reference column 5) Enter a slash (/) followed by a check mark (✓) in the Posting Reference column of the journal for each transaction that is posted to accounts receivable ledger
What are five (5) steps required to post cash receipts to the general ledger?
1) Enter the date of the sales transaction in the Date column 2) Enter the amount of the debit or credit in the Debit or Credit column 3) Enter the new balance in the Balance columns under Debit or Credit 4) Enter the journal page number from which each transaction is posted in the Posting Reference column 5) Enter the ledger account number in the Posting Reference column of the journal for each transaction that is posted to the general ledger
What are five (5) steps required to post sales transactions to the general ledger?
1) Enter the date of the sales transaction in the Date column 2) Enter the amount of the debit or credit in the Debit or Credit column 3) Enter the new balance in the Balance columns under Debit or Credit 4) Enter the journal page number from which each transaction is posted in the Posting Reference column 5) Enter the ledger account number in the Posting Reference column of the journal for each transaction that is posted to the general ledger
What four (4) accounts are used in accounting for merchandise sales transactions?
1) Sales (i.e. revenue account; C normal bal.) 2) Sales Tax Payable (i.e., liability account; C normal bal.) 3) Sales Returns and Allowances (i.e., contra-revenue account; D normal bal.) 4) Sales Discounts (i.e., contra-revenue account; D normal bal.)
If the schedule of accounts receivable does not equal the Accounts Receivable balance what three (3) steps can be followed to find the error?
1) Verify the total of the accounts receivable schedule 2) Verify the postings to the accounts receivable ledger 3) Verify the postings to Accounts Receivable in the general ledger
When there is sales tax, the discount is calculated on the sale amount excluding the sales tax, If a sale was made for $100 with a sales tax of 5% with credit terms of 2/10, n/30 what two (2) correct journal entries are required? [Note: If there is sales tax, the discount is calculated on the sale amount excluding the sales tax and therefore if cash is received within the discount period, the discount is 2% * $100 = $2.00]
A: 1) At the time of the sale: D -> Accounts Receivable/Customer Name $105 C -> Sales $100 C -> Sales Tax Payable $5 {Description "Made sale on account"} 2) At the time of cash receipt: D -> Cash $103.00 D -> Sales Discounts $2.00 C -> Accounts Receivable/Customer Name $105.00 {Description "Received cash on account"}
What is the schedule of accounts receivable?
Alphabetical or numerical listing of customer accounts and balances that is generally prepared at the end of the month
What is a merchandising business?
Business that purchases merchandise and sells that merchandise to its customers
What are the three (3) phases in the wholesale sales transaction process?
Input (i.e., customer purchase order) Processing (i.e., customer credit approval and verification) Output (i.e., sales invoice generated and copies distributed)
What is the difference between retailers and wholesalers?
Retailers usually sell to final consumers and wholesalers tend to sell to retailers
What are the four parts of the marketing chain?
Manufacturer => Wholesaler => Retailer => Consumer
As both retailers and wholesalers have customers return goods or seek price reductions for damaged goods, what happens when customers return merchandise or obtain price adjustments?
Merchandise returned by a customer for a refund is called a sales return, price reductions granted by the seller because of defects or other problems with the merchandise are called sales allowances, and when credit is given for merchandise returned or for an allowance, a credit memorandum (i.e., credit memo) is issued for the amount involved
What is a retailer and what is the normal process that occurs within a retailer?
Retail businesses generally sell to customers who enter the store - select the merchandise they want - bring the merchandise to a sales clerk - sales clerk enters the sale in some type of electronic cash register - register generates a receipt for the customer - copy of the receipt is retained in the register - register prints a summary of the day's sales activity - summary is sent to accounting department - accounting department uses summary to journalize sales in the accounting records [Note: Sales ticket (i.e., document created as evidence of a sale in a retail business) is given to the customer and to the accounting department]
What is a wholesaler and the normal process that occurs in interactions with retailers?
Retailers commonly send electronic orders to wholesalers - - when order arrives at wholesaler the retailer customer name and items being ordered are determined - since wholesalers typically make sales on account, a credit approval is needed - three (3) copies of a sales invoice (i.e., Document that is generated to bill the customer to whom the sale was made) are generated - one copy is sent to the customer as a bill for the merchandise, one copy is sent to the accounting department to record the sale, and one copy is shipped with the merchandise to the retailer customer
What does a retailer generally do?
Retailers generally make sales in the store
As the Sales Returns and Allowances Account is reported as a deduction from Sales on the income statement, what is the amount of net sales if sales for the period were $200 and the balance in the Sales Returns and Allowances account is $100?
Sales - Sales Returns and Allowances = Net sales $200 - $100 = $100
What is the accounts receivable ledger?
Separate ledger containing an individual account receivable for each customer (i.e., this is used to ensure that the business has a complete record of the account receivable from individual customers)
What is the Sales Discount account?
The Sales Discount account is a contra-revenue account (i.e., has a debit balance and is deducted from the related revenue account) that is used to record the sales discounts that are offered by sellers to encourage prompt payment by customers who purchase merchandise on account (i.e., the account is debited for cash discounts allowed) [Note: The Sales Returns and Allowances account balance and the Sales Discount account balance are reported as a deduction from Sales on the income statement (i.e., sales returns and allowances, and sales discounts are debited to a separate account rather than directly to Sales so that the business can more readily keep track of this activity)]
What is the Sales Returns and Allowances account?
The Sales Returns and Allowances account is a contra-revenue account (i.e., has a debit balance and is deducted from the related revenue account) that is used to record sales returns and sales allowances (i.e., the account is debited for sales returns and sales allowances) [Note: To record sales returns and sales allowances D Sales Returns and Allowances for the amount of the sale excluding the sales tax]
What is the Sales Tax Payable account?
The Sales Tax Payable account is a liability account used to record sales tax that is required to be collected by the state on sales to final consumers (i.e., it is credited for the taxes imposed on sales, and debited for sales taxes paid to the proper taxing authority or for sales taxes on merchandises returned by customers) [Note: A credit balance in the account indicates the amount owed to the taxing authority for taxes collected]
What is the Sales account?
The sales account is a revenue account used to record sales of merchandise (i.e., the account is credited for the selling price of merchandise sold during the period)
What information is used to prepare the schedule of accounts receivable?
The schedule is prepared from the list of customer accounts in the accounts receivable ledger (i.e. the total calculated in the schedule of accounts receivable is compared with the balance in Accounts Receivable in the general ledger)
Why do businesses offer cash discounts?
To encourage prompt payment by customers who buy merchandise on account (i.e., when credit is tight and businesses are short of cash, it is particularly important to convert accounts receivable into cash as soon as possible and prompt collection of accounts receivable also reduces the risk that those receivables will become uncollectible)
What is the schedule of accounts receivable used for?
To verify sum of accounts receivable ledger balances equals Accounts Receivable balance
What is a sale?
Transfer of merchandise from one business or individual to another in exchange for cash or a promise to pay cash (i.e., creation of an accounts receivable) [Note: Sales procedures and documents vary greatly depending on the nature and size of the business]
_____ is a separate ledger containing an individual account receivable for each customer, kept in either alphabetical order or in numerical order
accounts receivable ledger
_____ are discounts to encourage prompt payment by customers who buy merchandise on account
cash discounts
_____ is an account with a debit balance that is deducted from the related revenue account
contra-revenue account
_____ is a summary account maintained in the general ledger with a subsidiary ledger (i.e., the accounts receivable ledger)
controlling account
_____ is a document issued when credit is given for merchandise return or for when an allowance is given
credit memo
_____ is a business that purchases merchandise and sells that merchandise to its customers
merchandising business
_____ is a transfer of merchandise from one business or individual to another in exchange for cash or a promise to pay
sale
_____ are reductions in the price of merchandise granted by the seller because of defects or other problems with the merchandise
sale allowances
_____ to the seller, cash discounts are considered sales discounts
sales discounts
_____ is a document that is generated to bill the customer to whom the sale was made
sales invoice
_____ is merchandise returned by a customer for a refund
sales return
_____ is a document created as evidence of a sale in a retail business
sales ticket
_____ is an alphabetical or numerical listing of customer accounts and balances, usually prepared at the end of the month
schedule of accounts receivable
_____ is a separate ledger made up of individual accounts that contain the detail for a controlling
subsidiary ledger
