Follow the process
The Accounting Equation of a Merchandising Business
Revenue from the sales of goods under the Sales account
Merchandise: goods acquired by a merchandising business for resale to its customers in the same physical condition.
Chapter 5 Sales and Sales Journal
Lead-in
Chapter One to Chapter Four: basic accounting concepts and procedures
of a service-type sole proprietorship
Now, accounting practice of a merchandising sole proprietorship
Seller: debiting the Sales Returns and Allowances account and crediting the Accounts Receivable account.
Return: it is a 100% refund to the customer
Example context
Mr Li decides to extend his business to the sale of merchandise and thus opens a store called Guangli Furniture Store, which sells furniture and fixtures.
Sales Returns and Allowances
The Sales Journal
Sales journal is used to record sales of merchandise on credit only
Since the money ceivable Dr and Sales Cr, a single line is sufficient to record a transaction, whereas at least three lines are needed in the general journal (debit, credit, and explanation).
= the balances of the charge customer
accounts in the accounts receivable ledger.
Sales Returns and Allowances
Seller will issue a credit memorandum
Now let’s suppose that in the first month of business, Guangli Furniture Store completed the following credit
Sales Tax
Sales tax payable: Value added tax: A charge on taxable
Check mark (√) is put in the Posting Reference column
posts the total of the credit sales from the sales journal to the general ledger by debiting the Accounts Receivable (controlling) account and crediting the Sales account.
Prepare a schedule of accounts receivable
Listing individual balances of all the charge customer accounts
Accounts Receivable (controlling) account in the general ledger
Accounts receivable ledger: the charge customers and their
respective balance controlling account subsidiary ledger
Posting from the Sales Journal
Allowance: reduction from the original price
Contra account
Sales Returns and Allowances account: a contra account to the Sales account Example:
Posting Directly from Sales Invoices
supplies of goods and services by a taxable person in the course or furtherance of a business.
The Accounts Receivable Ledger
Practical: to maintain a separate account for each charge customer.
Merchandise inventory:a stock of goods that a merchandising business acquires and keeps on hand for resale to its customers in its normal operations.