Learning Objectives LO 1 Explain the relationship between

Learning Objectives LO 1 Explain the relationship between the accounts receivable ledger and its controlling account. LO 2 Record sales on account using a sales journal. © 2014 Cengage Learning. All Rights Reserved.

Lesson 10 -1 Subsidiary Ledgers and Controlling Accounts LO 1 ● Merchandising businesses get revenue from the sale of merchandise. ● The amount a business receives from the sale of an item of merchandise is called the selling price. ● A business must earn profit to survive and grow. ● The amount a business adds to the cost of merchandise to establish the selling price is called markup. ● Cost of merchandise + Markup = Selling Price © 2014 Cengage Learning. All Rights Reserved. SLIDE 2

Lesson 10 -1 Subsidiary Ledgers and Controlling Accounts LO 1 ● The sale of merchandise can be: ● On account ● For cash ● Revenue should be recorded when the sale is made, regardless of when payment is received. ● An accounts receivable ledger is a subsidiary ledger containing all accounts for charge customers. ● The total amount owed by these customers equals the balance in the controlling account, Accounts Receivable © 2014 Cengage Learning. All Rights Reserved. SLIDE 3

Lesson 10 -1 Subsidiary Ledgers and Controlling Accounts © 2014 Cengage Learning. All Rights Reserved. LO 1 SLIDE 4

Lesson 10 -1 Subsidiary Ledger Form 1 Date 3 LO 1 Account Name 4 Balance 5 Check Mark 2 Account Number 6 Account Balance Same column headings © 2014 Cengage Learning. All Rights Reserved. SLIDE 5

Lesson 10 -1 Sales Tax LO 2 ● Merchandising businesses sell to a variety of customers – individuals, businesses, schools, churches, etc. ● State/cities require that tax be collected from customers for each sale made – usually stated as a percentage of sales. ● A tax on a sale of merchandise or services is called a sales tax. © 2014 Cengage Learning. All Rights Reserved. SLIDE 6

Lesson 10 -1 Sales Tax LO 2 ● Businesses must file reports with the proper government agency and pay the amount of sales tax collected. ● Accurate records of total sales and sales tax collected must be kept. ● Sales tax collected is a LIABILITY until paid to the government agency. ● Recorded in a separate liability account titled Sales Tax Payable ● Increased by a credit and decreased by a debit © 2014 Cengage Learning. All Rights Reserved. SLIDE 7

Lesson 10 -1 Sales Journal LO 2 ● A sales journal is a special journal used to record only sales of merchandise on account. ● Special amount columns – each transaction can be recorded on one line of the Sales Journal © 2014 Cengage Learning. All Rights Reserved. SLIDE 8

Lesson 10 -1 Sales Invoice LO 2 ● Sellers prepare an invoice to document a sale when merchandise is sold on account. ● Describes the goods/services sold, the quantity, the price and the terms of sale ● The sales invoice is considered by the customer as a purchase invoice. © 2014 Cengage Learning. All Rights Reserved. SLIDE 9

Lesson 10 -1 Sales Invoice LO 2 © 2014 Cengage Learning. All Rights Reserved. SLIDE 10

Lesson 10 -1 Sale on Account LO 2 ● A sale on account transaction increases the amount to be collected later from a customer. ● Accounts Receivable is debited for the total amount of the sales plus sales tax ● Shows the increase in the AR asset account ● Sales is credited for the price of the goods ● Shows increase in the Sales revenue account ● Sales Tax Payable is credited for the amount of sales tax ● Shows increase in the Sales Tax Payable liability account © 2014 Cengage Learning. All Rights Reserved. SLIDE 11

Lesson 10 -1 Sale on Account LO 2 November 4. Sold merchandise on account to Wells Apartments, $454. 50, plus sales tax, $27. 27; total, $481. 77. Sales Invoice No. 498. Accounts Receivable 481. 77 Sales 454. 50 Sales Tax Payable 1 Date 2 Customer Name 3 27. 27 Sales Invoice Number Total Amount Owed by Customer 4 © 2014 Cengage Learning. All Rights Reserved. 5 Sales 6 Sales Tax SLIDE 12

Lesson 10 -1 Work Together 10 -1: Start a new page for an accounts receivable ledger account ● The customer is Venice Café, the account number is 120, and the balance on September 1 of the current year is $390. 34. © 2014 Cengage Learning. All Rights Reserved. SLIDE 13

Work Together 10 -1 : Journalize the following transactions on page 9 of the sales journal ● Classic Appliances operates in a state with 6% sales tax. The sales invoice source document is abbreviated as S. Transaction: Sept. 2. Sold merchandise on account to Lenny Stanford, $1, 600. 00, plus sales tax. S 221. © 2014 Cengage Learning. All Rights Reserved. SLIDE 14

Work Together 10 -1 : Journalize the following transactions on page 9 of the sales journal ● Classic Appliances operates in a state with 6% sales tax. The sales invoice source document is abbreviated as S. Transaction: Sept. 6. Sold merchandise on account to Washington City Schools, $680. 00. Tax Exempt. S 222. © 2014 Cengage Learning. All Rights Reserved. SLIDE 15

Work Together 10 -1 : Journalize the following transactions on page 9 of the sales journal ● Classic Appliances operates in a state with 6% sales tax. The sales invoice source document is abbreviated as S. Transaction: Sept. 7. Sold merchandise on account to Venice Café, $2, 560. 00, plus sales tax. S 223. © 2014 Cengage Learning. All Rights Reserved. SLIDE 16

Work Together 10 -1 : Journalize the following transactions on page 9 of the sales journal ● Classic Appliances operates in a state with 6% sales tax. The sales invoice source document is abbreviated as S. Transaction: Sept. 15. Sold merchandise on account to Washington City Schools, $1, 849. 00. S 224. © 2014 Cengage Learning. All Rights Reserved. SLIDE 17

Lesson 10 -1 Audit Your Understanding 1. How are selling price and markup related? ANSWER Markup is the amount added to the cost of merchandise to set the selling price. © 2014 Cengage Learning. All Rights Reserved. SLIDE 18

Lesson 10 -1 Audit Your Understanding 2. What is the relationship between the accounts receivable ledger and its controlling account? ANSWER The total of the accounts in the accounts receivable subsidiary ledger equals the balance in the controlling account, Accounts Receivable. © 2014 Cengage Learning. All Rights Reserved. SLIDE 19

Lesson 10 -1 Audit Your Understanding 3. What column on a general ledger form is not on an accounts receivable ledger form? ANSWER Credit Balance © 2014 Cengage Learning. All Rights Reserved. SLIDE 20

Lesson 10 -1 Audit Your Understanding 4. What is the title of the general ledger account used to summarize the total amount due from all charge customers? ANSWER Accounts Receivable © 2014 Cengage Learning. All Rights Reserved. SLIDE 21

Lesson 10 -1 Audit Your Understanding 5. How are sales tax rates usually stated? ANSWER As a percent of sales © 2014 Cengage Learning. All Rights Reserved. SLIDE 22

Lesson 10 -1 Audit Your Understanding 6. Why is sales tax collected considered a liability? ANSWER The amount of sales tax collected is a business liability until paid to the government. © 2014 Cengage Learning. All Rights Reserved. SLIDE 23