chapter ten the sales journal and the purchases journal

Chapter Ten

The Sales Journal and the Purchases

Journal

Performance Objectives

1. Describe the specific accounts used by a merchandising firm

2. Journalize transactions in a sales journal

3. Post sales journal transactions to an accounts receivable ledger and a general ledger

4. Prepare a schedule of accounts receivable

5. Journalize sales returns and allowances, including credit memorandums and returns involving sales tax, in a general journal, and post to the accounts receivable ledger and general ledger

6. Journalize transactions in a three-column purchases journal

7. Post purchases journal transactions to an accounts payable ledger and a general ledger

8. Prepare a schedule of accounts payable

9. Journalize transactions involving purchases returns and allowances in a general journal, and post to the accounts payable ledger and general ledger

10.Describe the procedures for handling freight charges on merchandise and other goods

Special Journals

• Books of original entry in which specialized types of repetitive transactions are recorded– Sales journal– Purchases journal– Cash receipts journal– Cash payments journal

Performance Objective 1

Describe the specific accounts used by a merchandising firm

Merchandising Accounts = + + -

+ - - + - + - + + -DR CR DR CR DR CR DR CR DR CR

+ - - + - + + -DR CR DR CR DR CR DR CR

+ - - +DR CR DR CR

+ -DR CR

Expenses

MerchandiseInventory

Sales TaxPayable Sales Purchases

Assets Liabilities Owner's Equity Revenues

Freight In

Sales Returnsand Allowances

Purchases Returnsand Allowances

Sales DiscountPurchasesDiscounts

ContraContraAccountsAccounts

Merchandise Inventory

• A stock of goods (an asset account) that a company buys and intends to resell, in the same physical condition, at a profit

Sales Tax

• A tax levied by a state or city government on the retail sale of goods and services

• Paid by the consumer but collected by the retailer

• Collection of tax recorded in Sales Tax Payable account

Sales Account

• A revenue account for recording the sale of merchandise

Sales Returns and Allowances Account

• The account a seller uses to record the physical return of merchandise by customers or a reduction in a bill because merchandise was damaged

• Treated as a deduction from sales

• Usually evidenced by a credit memorandum issued by the seller

Sales Discount Account

• An account that records a deduction from the original price, granted by the seller to the buyer for the prompt payment of an invoice

• Sales discount is treated as a deduction from sales

Purchases Account

• An account for recording the cost of merchandise acquired for resale

Purchases Returns and Allowances Account

• An account that records a company’s return of merchandise it has purchased or a reduction in the bill because of damaged merchandise

• Treated as a deduction from Purchases

Purchases Discount Account

• An account that records cash discounts granted by suppliers in return for prompt payment

• Treated as a deduction from Purchases

Freight In Account

• The account used to record transportation charges on incoming merchandise intended for resale

Invoices

• Business forms prepared by the seller that list the items shipped, their cost, the terms of the sale, and the mode of shipment

• May state freight charges

• Issued by seller

• Source document that serves as evidence for recording the transaction

Invoices—Whose Point of View?

• Seller’s point of view:– Sales invoice– Shows increase in sales revenue

• Buyer’s point of view:– Purchases invoice– Shows increase in purchases

Customers and Vendors

• People or businesses we buy from are called:– Suppliers– Creditors– Vendors

• People or businesses who buy from us are called:– Customers

Invoices

Journalize transactions in a sales journal

Sales Journal

• A special journal for recording the sale of merchandise on account only

• Abbreviated S in Post. Ref. column of ledgers

• DR = CR for every line

Columns in the Sales Journal

• Date

• Invoice Number

• Customer’s Name

• Post. Ref.

• Accounts Receivable Debit

• Sales Tax Payable Credit

• Sales Credit

Transactions in a Sales Journal with More Than One Column

Post sales journal transactions to an accounts receivable ledger and a general ledger

Some Definitions

• Controlling account– An account in the general ledger that summarizes

the balances of a subsidiary ledger

• Accounts Receivable– A controlling account in the general ledger

• Subsidiary ledger– A group of accounts representing individual

subdivisions of a controlling account

• Accounts receivable ledger– A subsidiary ledger that lists the individual

accounts of charge customers in either alphabetical or numerical order

Posting to the General Ledger

1. Draw a single line below the amount columns to indicate the last date in the period

2. Draw double lines below the Date column, Post. Ref. column, and column totals

3. Check that DR = CR4. Post each column total as a summarizing

entry to general ledger at the end of the period

5. After posting, write account numbers in parentheses below column totals

Posting to the Accounts Receivable Ledger

1. Post amount to customer’s account in the accounts receivable subsidiary ledger after recording each transaction

2. After posting, place check mark in the sales journal Post. Ref. column next to the customer's name

Post Sales Journal Transactions to an Accounts Receivable Ledger and a General Ledger

Accounts Receivable Ledger: An Example

Prepare a schedule of accounts receivable

A Schedule of Accounts Receivable

Journalize sales returns and allowances, including credit memorandums and returns involving sales tax, in a general journal, and post to the accounts receivable ledger and general ledger

Credit Memorandum

• A written statement indicating a seller’s willingness to reduce the amount of a buyer’s debt

• Seller records the amount of the credit memorandum in the Sales Returns and Allowances account

• Buyer records the amount of the credit memorandum in the Purchases Returns and Allowances account

Credit Memorandum

Journalize Sales Returns and Allowances in General Journal

• Journal entry– Credit Accounts Receivable– Debit Sales Returns and Allowances

• Why a credit memorandum?– Credit is from the seller’s point of view– Seller credits the buyer’s account

General Journal Entry for Sales Returns and Allowances

Post Sales Returns and Allowances

• Post once to:– Sales Returns and Allowances account

• Post twice to Account Receivable accounts:– Accounts Receivable account in the general

ledger• Use account number 113 for posting reference

– Customer’s individual account in the accounts receivable subsidiary ledger

• Use √ for posting reference

• After posting, Post. Ref. column in the general journal shows 113/√

Post to Sales Returns and Allowances

Post to Accounts Receivable

Sales Returns Involving Sales Tax

Purchase Requisition

• A form used to request that the Purchasing Department buy something

• Intended for internal use within a company

Purchase Requisition

Purchase Order

• A written order from the buyer of goods to the supplier, listing the items wanted and the terms of the transaction

Purchase Order

Purchase Invoice

Purchases Journal

• A special journal used to record the buying of goods on account

• Used to record the purchase of merchandise only

• Debits must equal credits on each line

Purchases Journal

• The flip side of the sales journal

• Point of view– The company selling uses the sales journal– The company buying uses the purchase

journal– Companies use both!

Journalize transactions in a three-column purchases journal

Columns in a Three-Column Purchases Journal

• Date• Supplier’s Name• Invoice Number• Invoice Date• Terms

• Post. Ref.• Accounts Payable

Credit• Freight In Debit• Purchases Debit

Entries in a Three-Column Purchases Journal

Post purchases journal transactions to an accounts payable ledger and a general ledger

Some Definitions

• Accounts payable ledger– A subsidiary ledger that lists the individual

accounts of creditors in either alphabetical or numerical order

• Accounts Payable – A controlling account in the general ledger– Account to which the accounts payable

total from the purchases journal is posted at the end of the period

Posting Transactions to the General Ledger at the End of the Period

• Draw a single line below the last amounts in the period

• Draw double lines below period’s ending date and totals

• Crossfoot– Does Accounts Payable column equal sum of all debits?– Use horizontal and vertical addition to prove DR = CR

• Post all totals to general ledger• After posting, place account numbers in parentheses

below column totals in purchases journal• P in the Post. Ref. column of the ledger account

designates the purchases journal

Posting Transactions to the Accounts Payable Ledger

• Post amount to supplier’s account each time you record a business transaction

• After posting, place check mark in the purchases journal Post. Ref. column

• P in the Post. Ref. column of the ledger account designates the purchases journal

Post Transactions from a Purchases Journal: An Example

Post Transactions to an Accounts Payable Ledger: An Example

Prepare a schedule of accounts payable

Prepare a Schedule of Accounts Payable

Journalize transactions involving purchases returns and allowances in a general journal, and post to the accounts payable ledger and general ledger

Purchases Returns and Allowances

• Journalize transactions involving purchases returns and allowances in the general journal

• Post to:– Accounts payable subsidiary ledger– Accounts Payable general ledger account

Journalize and Post a Purchase Return

Describe the procedures for handling freight charges on merchandise and other goods

Accounts Used to Record Freight Charges on Merchandise and Other Goods

• Debit Freight In for transportation charges on incoming merchandise intended for resale

• Debit Delivery Expense for transportation charges on merchandise sold and being delivered to customers

• Debit asset accounts for freight costs that apply to assets purchased – For example, $300 freight on a large freezer for a

restaurant would be debited to that freezer account

– Part of the cost of that asset

FOB Destination

• Shipping terms under which the seller pays the freight charges and includes them in the selling price

• Title or ownership changes hands when the buyer receives the goods

FOB Shipping Point

• Shipping terms under which the buyer pays the freight charges between the point of shipment and the destination

• Payment may be made directly to the carrier upon receiving the goods or to the supplier if the supplier prepaid the freight charge on behalf of the buyer

• Title or ownership changes hands when goods are transferred to the freight company

Internal Control

• Plans and procedures built into the accounting system with the following objectives:– To protect assets against fraud and waste– To provide accurate accounting data– To promote an efficient operation– To encourage adherence to management

policies

Demonstration Problem

• Journalize and post one transaction in the sales journal

• Look at a schedule of accounts receivable

Sales Tax 8.00%

Inv.No. Customer's Name

Post.Ref.

AccountsReceivable

Sales TaxPayableCredit

SalesCredit

1 2002 12 July 1 788 Denise Hogan 1,438.83 106.58 1,332.25 23 34 45 56 67 78 89 9

10 1011 1112 1213 1314 1415 1516 1617 1718 1819 1920 2021 2122 31 1,438.83 106.58 1,332.25 22

Sales Journal

Transaction on One Line

Post to Subsidiary Ledger

Denise Hogan322 West James, Apartment A9Whalen, WA 98671

ItemPost.Ref. Debit Credit Balance

2005July 1 S 32 1,438.83 1,438.83

Total Owed: 1,438.83

Address

Place Post. Ref. in Journal!Page 32

Sales Tax 8.00%

Post.Ref.

AccountsReceivable

SalesCredit

1 2005 12 July 1 788 Denise Hogan √ 1,438.83 106.58 1,332.25 23 34 45 56 67 78 89 9

10 1011 1112 1213 1314 1415 1516 1617 1718 1819 1920 2021 2122 31 1,438.83 106.58 1,332.25 22

Sales Journal

Total at End of Period and Post TotalsPage 32

Sales Tax 8.00%

Post.Ref.

AccountsReceivable

SalesCredit

1 2005 12 July 1 788 Denise Hogan √ 1,438.83 106.58 1,332.25 23 6 789 The River Riders √ 978.75 978.75 34 8 790 Chris Turk √ 4,590.00 340.00 4,250.00 45 9 791 Riverside Rentals √ 15,721.00 15,721.00 56 14 792 Kent Recreation Department √ 21,038.40 1,558.40 19,480.00 67 17 793 Maple Van Auken √ 3,980.34 294.84 3,685.50 78 23 794 River Tours, Inc √ 7,038.00 7,038.00 89 23 795 Vickie and Larry Currie √ 842.08 62.38 779.70 9

10 24 796 Sundowner Tours √ 6,144.00 6,144.00 1011 31 797 Kathy Walker √ 398.90 29.55 369.35 1112 1213 1314 1415 1516 1617 1718 1819 1920 2021 2122 31 62,170.30 2,391.75 59,778.55 22

Sales Journal

Post Accounts Receivable

Account Accounts Receivable Account No. 114

Debit Credit2005July 1 Balance √ 65,458.04 65,458.04

10 J 168 23.25 65,434.7921 J 168 108.00 65,326.7931 S 32 62,170.30 127,497.09

General Ledger

Date ItemPost.Ref. Debit Credit

Balance

Post. Ref. = 114Page 32

Sales Tax 8.00%

Post.Ref.

AccountsReceivable

SalesCredit

10 24 796 Sundowner Tours √ 6,144.00 6,144.00 1011 31 797 Kathy Walker √ 398.90 29.55 369.35 1112 1213 1314 1415 1516 1617 1718 1819 1920 2021 21

31 62,170.30 2,391.75 59,778.55114

Sales Journal

( )Post

Post Sales Tax Payable

Account Sales Tax Payable Account No 213

Debit Credit2005July 1 Balance √ 3,085.19 3,085.19

14 CP 41 3,085.19 0.0021 J 168 8.00 8.0031 S 32 2,391.75 2,383.75

General Ledger

Date Item Debit CreditBalancePost.

Sales Tax 8.00%

Post.Ref.

AccountsReceivable

SalesCredit

10 24 796 Sundowner Tours √ 6,144.00 6,144.00 1011 31 797 Kathy Walker √ 398.90 29.55 369.35 1112 1213 1314 1415 1516 1617 1718 1819 1920 2021 2122 31 62,170.30 2,391.75 59,778.55 2223 114 213 23

Sales Journal

( ) ( )Post

Post Sales

Account Sales Account No 411

Post.Ref.

Debit Credit2005July 31 S 32 59,778.55 59,778.55

General Ledger

Date Item Debit CreditBalance

Sales Tax 8.00%

PostRef

AccountsReceivable

SalesCredit

10 24 796 Sundowner Tours √ 6,144.00 6,144.00 1011 31 797 Kathy Walker √ 398.90 29.55 369.35 1112 1213 1314 1415 1516 1617 1718 1819 1920 2021 2122 31 62,170.30 2,391.75 59,778.55 2223 114 213 411 23

Sales Journal

( ) ( ) ( )

Post.Ref.

AccountsReceivable

SalesCredit

10 24 796 Sundowner Tours √ 6,144.00 6,144.00 1011 31 797 Kathy Walker √ 398.90 29.55 369.35 1112 1213 1314 1415 1516 1617 1718 1819 1920 2021 2122 31 62,170.30 2,391.75 59,778.55 2223 114 213 411 23

DR = CR62,170.30 Yes 62,170.30

Sales Journal

Prove DR = CR

( ) ( ) ( )

At the End of the Period, Track What Customers Owe You

Vickie and Larry Currie 842.08$ Denise Hogan 1,438.83 Kent Recreation Department 21,038.40 Chris Turk 4,590.00 Maple Van Auken 3,980.34 Kathy Walker 398.90 The River Riders 978.75 Riverside Rentals 15,721.00 River Tours 7,038.00 Sundowner Tours 6,144.00

Total Accounts Receivable 62,170.30$

Dean's KayaksSchedule of Accounts Receivable

July 31, 2005

chapter ten the sales journal and the purchases journal

sales slide

sales account

purchases journal slide

general ledger slide

general journal

sales returns

sales discount account

seller slide

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