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Chapter 10 & 11

Chapter 10 & 11. Special Journals. Chapter 10 & 11. Performance objectives: New accounts for merchandising business Invoices Cash discounts, credit card expense and notes payable Sales journal Purchase journal Schedule of accounts receivable Schedule of accounts payable

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Chapter 10 & 11

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  1. Chapter 10 & 11 Special Journals

  2. Chapter 10 & 11 • Performance objectives: • New accounts for merchandising business • Invoices • Cash discounts, credit card expense and notes payable • Sales journal • Purchase journal • Schedule of accounts receivable • Schedule of accounts payable • Sales returns and allowances • Purchase returns and allowances • Cash receipts journal • Cash payments journal

  3. Reminder • Contra accounts: • Attached to another account • Opposite “+” & “-”

  4. Describe The Specific Accounts Used By A Merchandising Firm Contra Accounts

  5. Accounts Used by Merchandising Firm • Nine new accounts (T accounts on page 330) • Assets: • Merchandising Inventory • Stock of goods that company buys & intends to resell • Examples: • Shoes in shoe store • Boomerangs and kites in kite store • This account shows all the inventory after Purchases account is closed

  6. Accounts Used by Merchandising Firm • Liabilities: • Sales Tax Payable • We collect sales tax for the government, and thus we must record the liability when we receive the money • We will pay later

  7. Accounts Used by Merchandising Firm • Revenues: • Sales account • Account used to record sales revenue from selling shoes, boomerangs, groceries, etc. • Contra revenues: • Sales Returns & Allowances • From seller’s point of view, account used to record returned merchandise or reductions in revenues because merchandise was damaged • Reduction to revenues • Sales Discounts • From seller’s point of view, account used to record cash discounts given for prompt payment of “on account” sales • Reduction to revenues

  8. Accounts Used by Merchandising Firm • Expenses: • Purchases • Account used to record the cost of merchandise bought for resale • Only for purchased items you intend to resell • At closing, we have to count inventory to see if we used all our purchases • Freight In account • Account used to record shipping costs for purchases • Contra expenses: • Purchases Returns & Allowances • From purchaser’s point of view, account used to record returned merchandise or reductions in expenses because merchandise was damaged • Reduction to expenses • Purchases Discounts • From purchaser’s point of view, account used to record cash discounts earned for prompt payment of “on account” purchases

  9. Invoices • Seller issues invoice • Items shipped • Cost • Terms • Mode of shipping • Seller’s point of view: • Sales invoice • Increase sales revenue • Buyer’s point of view: • Purchase invoice • Increase purchases

  10. Invoices

  11. Mode of Shipping • FOB destination • Seller pays for shipping (freight) • Title (rights of ownership) transfer to buyer when the goods are received • FOB shipping • Buyer pays for shipping (freight) • Title (rights of ownership) transfer to buyer when the goods are delivered to the shipper • Shipping costs: • Listed on invoice & paid with invoice totalor • Paid directly to shipper • *FOB = free on board

  12. Customers & Vendors • When we buy something from a business, they are called: • Suppliers • Creditors • Vendor • When we sell something to another business or individual, they are called: • Customer Synonyms

  13. Cash Discounts • Discounts given as an incentive to pay the bill early • Why? • Cash is king! • Or, “Cash is Queen! (Why not?) • Seller records as a “Sales Discount” • Reduction in sales • Buyer records as a “Purchase Discount” • Reduction in purchases • Not all sellers offer cash discounts

  14. “Purchases Discount”Reduction in Purchases 2/10, N/30 2% Discount on Invoice Total (after any returns or allow. & not Including Freight) If Paid Within… 30 Days After Invoice Date 10 Days From The Date on the Invoice – Start Counting One Day After Invoice Date “Net” If You Don’t Take Discount, You Must Pay “Net Due” By… “Two Ten Net Thirty”

  15. “Sales Discount”Reduction in Sales 2/10, N/30 2% Discount on Invoice Total (after any returns or allow. & not Including Freight) If Paid Within… 30 Days After Invoice Date 10 Days From The Date on the Invoice – Start Counting One Day After Invoice Date “Net” If You Don’t Take Discount, You Must Pay “Net Due” By… “Two Ten Net Thirty”

  16. Credit Period • The time the seller allows the buyer before full payment on a charge sale has to be made • 2/10, N/30 • The “N/30” is the credit period • The credit period for the customer is 30 days long

  17. Determine Cash Discounts According To Credit Terms

  18. Determine Cash Discounts According To Credit Terms • Sales discounts • Kite Flight (our customer) pays us within the 10 day discount period: 2/10,N/30

  19. Determine Cash Discounts According To Credit Terms • Purchase discounts • We pay our supplier (Plywood Wholesaler) within the 15 day discount period: 1/15,N/45

  20. Credit Card Expense • When businesses accept credit card payments from customers, the business must pay the credit card company a fee • The expense is called: • Credit card expense

  21. Notes Payable The account containing the balance of promissory notes Liability “Debt” Promissory Note A written promise to pay a specified amount at a specified time Issuer records: Notes receivable Asset Holder records: Notes payable Liability Notes

  22. New Transaction for this Chapter: • When we borrow $600 from the bank, the account on our books is called: • Notes payable (We Owe  Debt) • When we pay off the notes payable and the interest we owe ($600 N.P. & $60 interest):

  23. Special Journals • Books of original entry • (S) Sales Journal (chapter 10): • Merchandise sales on account • (P) Purchase Journal (chapter 10) • Merchandise purchases on account • (CR) Cash Receipts journal (chapter 11) • Cash Received • (CP) Cash Payments journal (chapter 11) • Cash Payments • (J) the General Journal handles all other transactions

  24. Special Journals • Why special journals? Special journals help to: • Avoid repetitious recording activities • Separate different duties within the accounting department which help to: • Increases efficiency • Reduce theft and fraud • Separation of duties

  25. Journalizing: Record “on account” sales Page 336 Date Invoice # Name Posting reference Accounts Receivable Debit Sales Tax Payable Credit Sales Credit DR = CR on every line! Posting: Picture, page 337 Each time you record a business transaction: Post amount to customer’s account in the Accounts Receivable subsidiary ledger After you post, place check mark in the sales journal posting reference column next to the customer's name At the end of the period Double lines (page 336) Check that DR = CR Post all totals to general ledger After you post, place account numbers below column totals in sales journal Sales Journal - Chapter 10

  26. Accounts Receivable Ledger • We have a separate ledger just for the customers accounts receivable!! • “Subsidiary ledger” • This ledger only has accounts for customers • One for each customer: see page 338 to 339 • Most computerized systems use account numbers, not check marks during posting • (Accounts Receivable) is listed in the general ledger: • At the end of the period we post the accounts receivable total amount from the sales journal • “Controlling account” • At the end of the period, we must prepare a Schedule of Accounts Receivable!! • Picture on page 341

  27. Purchase Journal - Chapter 10 • The Purchase Journal is the flip-side of the Sales Journal • The company selling uses the Sales Journal (chapter 10) • The company buying uses the Purchase Journal (chapter 10) • Do companies use both? • Yes!

  28. Journalizing: Record “on account” merchandise purchases Page 374 Journalizing date Name Invoice # Invoice date! Terms PR Accounts Payable Credit Freight in Debit Purchases Debit DR = CR on every line! Posting (pages 347 to 350) Each time you record a business transaction: Post amount to supplier’s account in the Accounts Payable subsidiary ledger After you post, place check mark in the Purchases Journal posting reference column At the end of the period Double lines Crossfooting: Accounts payable column = sum of all debits? Horizontal & vertical addition to prove DR = CR Post all totals to general ledger After you post, place account numbers below column totals in purchases journal Record Transactions in 3-Column Purchase Journal (Ch 10)

  29. Accounts Payable Ledger • We have a separate ledger just for the suppliers’ accounts payable! • “Subsidiary ledger” • This ledger only has accounts for suppliers • One for each supplier: see page 349 to 350 • Most computerized systems use account numbers, not check marks during posting • (Accounts Payable) is listed in the general ledger: • At the end of the period we post the accounts payable total amount from the purchase journal • “Controlling account” • At the end of the period, we must prepare a Schedule of Accounts Payable! • Picture on page 350

  30. Journalize “Sales Returns & Allowances” • “Sales Returns & Allowances” • Contra revenue • Reduces the sales revenue account • Credit memorandums (example page 342) • “Written statement indicating a seller’s willingness to reduce the amount of the buyer’s debt.” • Seller says to customer: “I'll reduce the amount you owe us.” • Dodson Plumbing Supply tells Barlow that they will reduce the amount he owns them by $54.00 • Journal entry: credit Accounts Receivable, debit “Sales Returns & Allowances” • Why is it called “credit” memorandum? • Because it’s from the seller’s point of view • Credit to Accounts Receivable!

  31. Post “Sales Returns & Allowances” • Post “Sales Returns & Allowances” to “Sales Returns & Allowances” account • Then post twice to the Account Receivable accounts • What do you mean I have to post twice? • Page 343 • Because we have to post once to the Account Receivable in the General Ledger & once to the customer’s individual Accounts Receivable in the Accounts Receivable subsidiary ledger • 113/√

  32. Journalize and Post “Sales Returns & Allowances” • Returns involving sales tax • Page 344

  33. Journalize Transactions Involving “Purchase Returns & Allowances” in General Journal • Flip side of Sales Returns & Allowances • Excellent note left upper corner page 351 • The buyer receives a credit memorandum • Page 351 – good t-account example • Journalizing & posting – page 352 • Must post to both: • Accounts Payable (control account) in General Ledger • Individual’s Accounts Payable in Accounts Payable subsidiary ledger • 221/√

  34. Contains all transactions in which cash is received All debits to cash! If you receive cash, you must put it here! Example on page 384 Each line represents a transaction where we receive cash DR = CR for each line All the way at the end: Cash debit Credit card debit All the rest are credits Post after each journal entry: Accounts Receivable (PR = √) “other accounts” (PR = # for that account) At the end of the period: Date for last day Single line before totaling Double line after totals Post all the column totals After posting, place account # under column totals Place “X” under “other accounts” to indicate that you already posted these amounts Make sure that DR = CR Cash Receipts Journal (Ch 11)

  35. Contains all transactions in which cash goes out, or is paid out All credits to cash! If you pay cash, you must put it here! Remember rule about cash: Always pay with a check! Example on page 391 Each line represents a transaction where we write a check to pay cash Date List checks in consecutive order (even void checks) Name of account debited All the way at the end Cash credit Purchase discount credit All the rest are debits DR = CR for each line Post after each journal entry: Accounts Payable (PR = √) “other accounts” (PR = # for that account) At the end of the period: Date for last day Single line before totaling Double line after totals Post all the column totals After posting, place account # under column totals Place “X” under “other accounts” to indicate that you already posted these amounts Make sure that DR = CR Cash Payments Journal (Ch 11)

  36. Check & Deposit Register • When we do Spa Magic, in addition to the cash receipts and cash payments journals, we will have to record all checking account activity in a checkbook register

  37. Good Note • Page 398: • Post from special journals in this order: • Sales journal • Purchase journal • Cash receipts journal • Cash payments journal

  38. Review Of Chapter 10 & 11 • Sales Journal • Purchase Journal • Cash Receipts Journal • Cash Payments Journal

  39. Journalizing: Record “on account” sales Page 336 Date Invoice # Name Posting reference Accounts Receivable Debit Sales Tax Payable Credit Sales Credit DR = CR on every line! Posting: Picture, page 337 Each time you record a business transaction: Post amount to customer’s account in the Accounts Receivable subsidiary ledger After you post, place check mark in the sales journal posting reference column next to the customer's name At the end of the period Double lines (page 336) Check that DR = CR Post all totals to general ledger After you post, place account numbers below column totals in sales journal Sales Journal

  40. Journalizing: Record “on account” merchandise purchases Page 374 Journalizing date Name Invoice # Invoice date! Terms PR Accounts Payable Credit Freight in Debit Purchases Debit DR = CR on every line! Posting (pages 347 to 350) Each time you record a business transaction: Post amount to supplier’s account in the Accounts Payable subsidiary ledger After you post, place check mark in the Purchases Journal posting reference column At the end of the period Double lines Crossfooting: Accounts payable column = sum of all debits? Horizontal & vertical addition to prove DR = CR Post all totals to general ledger After you post, place account numbers below column totals in purchases journal Record Transactions in 3-Column Purchase Journal

  41. Contains all transactions in which cash is received All debits to cash! If you receive cash, you must put it here! Example on page 384 Each line represents a transaction where we receive cash DR = CR for each line All the way at the end: Cash debit Credit card debit All the rest are credits Post after each journal entry: Accounts Receivable (PR = √) “other accounts” (PR = # for that account) At the end of the period: Date for last day Single line before totaling Double line after totals Post all the column totals After posting, place account # under column totals Place “X” under “other accounts” to indicate that you already posted these amounts Make sure that DR = CR Cash Receipts Journal

  42. Contains all transactions in which cash goes out, or is paid out All credits to cash! If you pay cash, you must put it here! Remember rule about cash: Always pay with a check! Example on page 391 Each line represents a transaction where we write a check to pay cash Date List checks in consecutive order (even void checks) Name of account debited All the way at the end Cash credit Purchase discount credit All the rest are debits DR = CR for each line Post after each journal entry: Accounts Payable (PR = √) “other accounts” (PR = # for that account) At the end of the period: Date for last day Single line before totaling Double line after totals Post all the column totals After posting, place account # under column totals Place “X” under “other accounts” to indicate that you already posted these amounts Make sure that DR = CR Cash Payments Journal

  43. Demonstration Problem • Journalize and post one transaction in the sales journal • Look at a schedule of accounts receivable

  44. Transaction on One Line

  45. Post to Subsidiary Ledger

  46. Place Post. Ref. in Journal!

  47. Post Total at End of Period and Post Totals

  48. Post Accounts Receivable

  49. Post Post. Ref. = 114 ( )

  50. Post Sales Tax Payable

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