2. Using an expanded journal is not practical or
efficient as the amount of transactions grows.
Special journals that capture a specific type of
transaction can be used.
The journalizing effort can be shared among
multiple bookkeepers/accounting clerks.
The posting effort can be shared among multiple
bookkeepers/accounting clerks.
There are several special journals, the business
decides which it will use.
3.
Transaction: sales to customers on account ONLY!
Debit Accounts Receivable
Credit Sales and Sales Tax Payable
A/R debit = Sales credit + Sales Tax Payable credit
Need to identify the customer
Source document is usually a sales invoice
4.
Collected by business, not kept by business
Creates a liability for business
Money owed to government entities
Sales tax rate usually shown as percentage such
as 7.5% (.075 in decimal)
Multiply sale amount by rate to find tax.
Customer purchase is $100, assume sales tax rate
of 8%
Sales tax is $8 ($100 * .08)
Customer pays $108 ($100 for merchandise plus
$8 sales tax).
5. Transaction: any cash received IN TO the
business is recorded in this journal.
Source document is usually a receipt.
Cash will ALWAYS be debited!
6.
Cash/credit card/debit card sales
◦ Debit cash
◦ Credit sales and sales tax payable
Business owner invests cash in business
◦ Debit cash
◦ Credit owner’s capital account (General Credit)
Customer pays business “on account”
◦ Debit cash
◦ Credit accounts receivable
What if customer receives a sales discount?
7.
Sales Discount has a normal debit balance. It affects the
Sales account which has a normal credit balance. So,
Sales Discount reduces the account it affects, namely
Sales. So, Sales Discount is referred to as a “contra”
account since it runs contrary to or opposite the account
if affects.
Recall, the business has an accounts receivable at the
full amount that the customer owes however the
customer ends up paying less than the sales invoice
amount so Sales Discount reflects that difference.
8.
Customer owes business $1,080 so accounts receivable is
debited $1,080 which equals a Sales credit of $1,000 and
Sales Tax Payable credit of $80 (8% sales tax rate). Terms of
sale on sales invoice are 2/10, n/30. Customer pays within 10
days so they can take discount on the SALE AMOUNT ONLY,
NOT TOTAL.
$1,000 * .02 = $20 discount on sale amount. Also need to
calculate reduction is sales tax since amount being paid by
customer is less. $20 * .08 = $1.60
How is this payment journalized?
Credit Accounts Receivable full amount $1,080
Debit Sales Discount $20 to reflect 2% discount
Debit Sales Tax Payable $1.60 to reflect discount
Debit Cash $1,058.40 ($1,080 - $20 - $1.60)
9. $1,080 credit = $1,058.40 debit + $20 debit + $1.60 debit
Debits = Credits, which is what we want!
10.
Business will prepare a credit memorandum to identify
the amount of the credit or reduction to the customer’s
Accounts Receivable.
Credit memo will be source document for any return
and allowance transactions.
Business captures the return or allowance amount in
an account known as
Sales Returns and Allowances
As with Sales Discounts this lets business track
returns and allowances in place of debiting the Sales
account.
11.
Sales Returns and Allowances (SRA) has
normal debit balance. It affects the Sales
account which has a normal credit balance. So,
SRA reduces the account it affects, namely
Sales. So, SRA is referred to as a “contra”
account since it runs contrary to or opposite the
account if affects.
12.
To journalize a return you CREDIT Accounts
Receivable/Customer the total amount of sale plus sales
tax and DEBIT Sales Returns and Allowances the amount
of the sale and DEBIT Sales Tax Payable the amount of
sales tax.
To journalize an allowance you CREDIT Accounts
Receivable/Customer the amount of the allowance and
DEBIT Sales Returns and Allowances the amount of the
allowance and DEBIT Sales Tax Payable the amount of
sales tax.
This contra accounts are used so the Sales account is not
affected with debits.
