Key Terms

2. Accounting for aMerchandising Business Section 14.1 Key Terms • retailer • wholesaler • merchandise • inventory • sales

3. The Operating Cycle of Merchandising Business Accounting for aMerchandising Business Section 14.1 Retailers Some merchandising businesses are both Wholesalers retailer A business that sells to the final user, the consumer. wholesaler A business that sells to the retailers.

4. The Operating Cycle of a Merchandising Business Accounting for aMerchandising Business Section 14.1 See page 383

5. Accounts Used by a Merchandising Business Accounting for aMerchandising Business Section 14.1 A merchandising business buys merchandise from a wholesaler or manufacturer. A merchandising business sells goods to its customers. merchandise Goods bought to resell to customers. A merchandising business keeps an inventory. inventory The items of merchandise a business has in stock.

6. Accounts Used by a Merchandising Business Accounting for aMerchandising Business Section 14.1 Inventory is represented in the general ledger by the asset account Merchandise Inventory. The normal balance of this account is a debit. MerchandiseInventoryAccount Merchandise is bought and sold during the operating cycle. The purchase and sale of merchandise is recorded in separate accounts.

7. Accounts Used by a Merchandising Business Accounting for aMerchandising Business Section 14.1 The amount of the merchandise sold is recorded in the sales account. Increases to sales are recorded as credits. SalesAccount The normal balance of the sales account is a credit. Sales on account affect the Accounts Receivable account and cash sales affect the Cash in Bank account. sales A revenue account to record the amount of the merchandise sold.

8. International Sales Accounting for aMerchandising Business Section 14.1 The United Nations Convention on Contracts for the International Sales of Goods (CISG) Created to provide guidelines and laws governing the international sale of goods Does not cover the sales of all goods Governs most business-to-business transactions

9. Analyzing SalesTransactions Section 14.2 Key Terms • sale on account • charge customer • credit card • sales slip • sales tax • credit terms • accounts receivable subsidiary ledger • subsidiary ledger • controlling account • sales return • sales allowance • credit memorandum • contra account

10. Sales on Account Analyzing SalesTransactions Section 14.2 A sale on account is made to a charge customer. sale on account The sale of merchandise that will be paid for at a later date. charge customer A customer to whom a sale on account is made.

11. Sales on Account Analyzing SalesTransactions Section 14.2 A store credit card facilitatessales on account. credit card A card issued by a business containing a customer’s name and account number that facilitates the sale on account.

12. Sales on Account Analyzing SalesTransactions Section 14.2 sales slip A form that lists the details of a sale. A charge sale involves: sales tax A tax levied by a city or state on the retail sale of goods and services. sales slip sales tax credit terms Terms that state the time allowed for payment for a sale on account. credit terms

13. Sales on Account Analyzing SalesTransactions Section 14.2 Date of the Sale Items on a sales slip include: Customer account identification Description, quantity, and price of items sold There are usually multiple copies of the sales slip with at least one for the customer and one for accounting purposes.

14. Sales on Account Analyzing SalesTransactions Section 14.2 Sales Tax A business periodically sends the collection of sales tax to the state. Until then, the amount owed is recorded in a liability account called Sales Tax Payable.

15. Sales on Account Analyzing SalesTransactions Section 14.2 The credit terms are listed on the sales slip. credit terms Terms that state the time allowed for payment for a sale on account. See page 388

16. The Accounts Receivable Subsidiary Ledger Analyzing SalesTransactions Section 14.2 What is the accounts receivablesubsidiary ledger? accounts receivable subsidiary ledger A separate ledger that contains accounts for each charge customer; it is summarized in the Accounts Receivable controlling account in the general ledger.

17. The Accounts Receivable Subsidiary Ledger Analyzing SalesTransactions Section 14.2 controlling account An account that serves as a control on the accuracy of the account balances in the subsidiary ledger; its balance must equal the total of all account balances in the subsidiary ledger.

18. The Accounts Receivable Subsidiary Ledger Analyzing SalesTransactions Section 14.2 Subsidiary Ledger Account Form See page 389 subsidiary ledger A ledger with detailed data that is summarized in a controlling account in the general ledger.

19. Recording Sales on Account Analyzing SalesTransactions Section 14.2 Recorded at the time of sale Recording a sale on account Revenue must be realizable

20. Recording Sales on Account (1) Analyzing SalesTransactions Section 14.2 Business Transaction On December 1 The Starting Line sold merchandise on account to Casey Klein for $200 plus sales tax of $12, Sales Slip 50. See page 390

21. Recording Sales on Account (2) Analyzing SalesTransactions Section 14.2 Business Transaction On December 3 The Starting Line sold merchandise on account to South Branch High School Athletics for $1,500, Sales Slip 51. See page 391

22. Recording Sales on Account Analyzing SalesTransactions Section 14.2 A merchant performs a sales return for customers who are unhappy with their purchases. A sales allowance may be issued by the merchant if merchandise is damaged prior to purchase. sales allowance A price reduction granted for damaged goods kept by the customer. sales return Any merchandise returned for credit or a cash refund.

23. Recording Sales on Account Analyzing SalesTransactions Section 14.2 Credit Memorandum See page 392 credit memorandum A form that lists the details of a sales return or sales allowance.

24. Recording Sales on Account Analyzing SalesTransactions Section 14.2 The Sales Returns and Allowances account is a contra account. contra account An account whose balance is a decrease to its related account.

25. Recording Sales on Account Analyzing SalesTransactions Section 14.2 Sometimes a cash refund is given and the Cash in Bank account is credited instead of Accounts Receivable.

26. Posting to the Accounts Receivable Subsidiary Ledger (3) Analyzing SalesTransactions Section 14.2 Business Transaction On December 4 The Starting Line issued Credit Memorandum 124 to Gabriel Ramos for the return of merchandise purchased on account, $150 plus $9 sales tax. See page 393

27. Posting to the Accounts Receivable Subsidiary Ledger Analyzing SalesTransactions Section 14.2 See page 394

28. Posting to the Accounts Receivable Subsidiary Ledger Analyzing SalesTransactions Section 14.2 See page 394

29. Analyzing CashReceipt Transactions Section 14.3 Key Terms • cash receipt • cash sale • cash discount • sales discount

30. Cash Transactions Analyzing CashReceipt Transactions Section 14.3 Four Kinds of Cash Receipts • Sales are recorded on two tapes • The register tape lists the total cash sales and tax collected Cash Sales cash receipt The cash received by a business in a single transaction. Charge Customer Payments • Businesses record cash received on account from charge customers on pre-numbered receipts cash sale A transaction in which the business received full payment for the merchandise sold at the time of the sale. • Can be processed manually or electronically • Debit and credit card sales are recorded like cash sales BankcardSales • Cash may be received from • Bank loans • Sale of assets other than merchandise Other CashReceipts

31. Cash Discounts Analyzing CashReceipt Transactions Section 14.3 The buyer receives merchandise at a reduced cost. A cash discount, or sales discount, is an advantage to both the buyer and the seller. The seller receives cash quickly. cash discount or sales discount The amount a customer can deduct from the total owed for purchased merchandise if payment is made within a certain time; also called sales discount.

32. Recording Cash Receipts Analyzing CashReceipt Transactions Section 14.3 Charge Customer Payments Cash Discount Payments Recording Cash from Four Sources Cash Sales Bankcard Sales

33. Recording Cash Receipts (4) Analyzing CashReceipt Transactions Section 14.3 Charge Customer Payments Business Transaction On December 5 The Starting Line received $212 from Casey Klein to apply to her account, Receipt 301. See page 399

34. Recording Cash Receipts (5) Analyzing CashReceipt Transactions Section 14.3 Cash Discount Payments Business Transaction On December 12 The Starting Line received $1,470 from South Branch High School Athletics in payment of Sales Slip 51 for $1,500 less the discount of $30, Receipt 302. See page 400

35. Recording Cash Receipts (6) Analyzing CashReceipt Transactions Section 14.3 Cash Sales Business Transaction On December 15 The Starting Line had cash sales of $3,000 and collected $180 in sales taxes, Tape 55. See page 401

36. Recording Cash Receipts (7) Analyzing CashReceipt Transactions Section 14.3 Bankcard Sales Business Transaction The Starting Line had bankcard sales of $700 and collected $42 in related sales taxes on December 15, Tape 55. See page 402

37. Recording Cash Receipts (8) Analyzing CashReceipt Transactions Section 14.3 Other Cash Receipts Business Transaction On December 16, The Starting Line received $30 from Mandy Harris, an office employee. She purchased a calculator that the business was no longer using, Receipt 303. See page 403

38. Question 1 List the operating cycle for a merchandising business. Step 1: Purchase goods for resale Step 2a: Sell goods for cash (skip to step 4). Step 2b: Sell goods on account. Step 3: Collect cash from accounts. Step 4: Pay expenses.

39. Question 1 A customer bought merchandise on February 1 totaling $1,800.00. As an incentive to get this customer to pay early, you offer terms of 1/20, n/30. The customer pays on February 15. Calculate the following: Total sale amount __________ Amount of discount __________ Net cash received __________ Now indicate whether you would debit or credit the following accounts. Accounts Receivable __________ Customer’s subsidiary account __________ Sales Discounts __________ Cash in Bank __________ $1,800.00 $18.00 $1,782.00 Credit Credit Debit Debit

40. End of