Chapter 10, Problem 11SPA

1.

To determine

Journalize the transactions related to cash receipt transactions.

Explanation of Solution

Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Debit and credit rules:

• Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.
• Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.

Journalize the transactions related to cash receipts.

Transaction on December 1:

Page: 20
Date		Account Titles and Explanations		Post. Ref.	Debit ($)	Credit ($)
20--
December	1	Cash		101	1,360
			Accounts Receivable, MA	122/✓		1,360
		(Record cash received for sales on account)

Table (1)

Description:

• Cash is an asset account. Since cash is received, asset account increased, and an increase in asset is debited.
• Accounts Receivable, MA is an asset account. Since amount to be received has decreased, asset account decreased, and a decrease in asset is credited.

Transaction on December 2:

Page: 20
Date		Account Titles and Explanations		Post. Ref.	Debit ($)	Credit ($)
20--
December	2	Cash		101	382
			Accounts Receivable, A Manufacturing	122/✓		382
		(Record cash received for sales on account)

Table (2)

Description:

• Cash is an asset account. Since cash is received, asset account increased, and an increase in asset is debited.
• Accounts Receivable, A Manufacturing is an asset account. Since amount to be received has decreased, asset account decreased, and a decrease in asset is credited.

Transaction on December 7:

Page: 20
Date		Account Titles and Explanation		Post Ref.	Debit ($)	Credit ($)
20--
December	7	Cash		101	3,349.60
			Sales	401		3,160.00
			Sales Tax Payable	231		189.60
		(Record cash sales)

Table (3)

Description:

• Cash is an asset account. Since cash is received, asset account increased, and an increase in asset is debited.
• Sales is a revenue account. Since revenues and gains increase equity, equity value is increased, and an increase in equity is credited.
• Sales Tax Payable is a liability account. Since the payable increased, the liability increased, and an increase in liability is credited.

Working Note 1:

Compute sales tax payable amount.

$\begin{array}{c}\text{Sales tax payable = Sales×Sales tax percentage}\\ \text{= \$3,160×6\%}\\ \text{= \$189}\text{.60}\end{array}$

Working Note 2:

Compute cash amount (Refer to Working Note 1 for value of sales tax payable).

$\begin{array}{c}\text{Cash = Sales+Sales tax payable}\\ \text{= \$3,160}\text{.00+\$189}\text{.60}\\ \text{= \$3,349}\text{.60}\end{array}$

Transaction on December 7:

Page: 20
Date		Account Titles and Explanation		Post Ref.	Debit ($)	Credit ($)
20--
December	7	Cash		101	1,028.20
		Bank Credit Card Expense		513	31.80
			Sales	401		1,000.00
			Sales Tax Payable	231		60.00
		(Record credit card sale)

Table (4)

Description:

• Cash is an asset account. Since cash is received, asset account increased, and an increase in asset is debited.
• Bank Credit Card Expense is an expense account. Since expenses and losses decrease equity, equity value is decreased, and a decrease in equity is debited.
• Sales is a revenue account. Since revenues and gains increase equity, equity value is increased, and an increase in equity is credited.
• Sales Tax Payable is a liability account. Since the payable increased, the liability increased, and an increase in liability is credited.

Working Note 3:

Compute sales tax payable amount.

$\begin{array}{c}\text{Sales tax payable = Sales×Sales tax percentage}\\ \text{= \$1,000×6\%}\\ \text{= \$60}\end{array}$

Working Note 4:

Compute bank credit card expense amount (Refer to Working Note 3 for value of sales tax payable).

$\begin{array}{c}\text{Bank credit card expense = }\left\{\begin{array}{l}\left(\text{Sales+Sales tax payable}\right)\text{×}\\ \text{Bank credit card fee percentage}\end{array}\right\}\\ \text{= }\left(\text{\$1,000}\text{.00+\$60}\right)\times 3\%\\ \text{= \$31}\text{.80}\end{array}$

Working Note 5:

Compute amount of cash received (Refer to Working Note 3 for value of sales tax payable and Working Note 4 for value of bank credit card expense).

$\begin{array}{c}\text{Cash = }\left\{\begin{array}{l}\left(\text{Sales+Sales tax payable}\right)–\\ \text{Bank credit card expense}\end{array}\right\}\\ \text{= }\left(\text{\$1,000}\text{.00+\$60}\text{.00}\right)–\$31.80\\ \text{= \$1,028}\text{.20}\end{array}$

Transaction on December 8:

Page: 20
Date		Account Titles and Explanation		Post. Ref.	Debit ($)	Credit ($)
20--
December	8	Cash		101	880
			Accounts Receivable, JG	122/✓		880
		(Record cash received for sales on account)

Table (5)

Description:

• Cash is an asset account. Since cash is received, asset account increased, and an increase in asset is debited.
• Accounts Receivable, JG is an asset account. Since amount to be received has decreased, asset account decreased, and a decrease in asset is credited.

Transaction on December 11:

Page: 20
Date		Account Titles and Explanation		Post Ref.	Debit ($)	Credit ($)
20--
December	11	Sales Returns and Allowances		401.1	60.00
		Sales Tax Payable		231	3.60
			Accounts Receivable, MA	122/✓		63.60
		(Record merchandise returned)

Table (6)

Description:

• Sales Returns and Allowances is a contra-revenue account, and contra-revenue accounts decrease the equity value, and a decrease in equity is debited.
• Sales Tax Payable is a liability account. Since the payable decreased due to returns, the liability decreased, and a decrease in liability is debited.
• Accounts Receivable, MA is an asset account. Since inventory is returned, amount to be received has decreased, asset account is decreased, and a decrease in asset is credited.

Working Note 6:

Compute sales tax payable amount.

$\begin{array}{c}\text{Sales tax payable = Sales returns×Sales tax percentage}\\ \text{= \$60×6\%}\\ \text{= \$3}\text{.60}\end{array}$

Working Note 7:

Compute accounts receivable amount (Refer to Working Note 7 for value of sales tax payable).

$\begin{array}{c}\text{Accounts receivable, MA = Sales returns+Sales tax payable}\\ \text{= \$60}\text{.00+\$3}\text{.60}\\ \text{= \$63}\text{.60}\end{array}$

Transaction on December 14:

Page: 20
Date		Account Titles and Explanation		Post Ref.	Debit ($)	Credit ($)
20--
December	14	Cash		101	2,968
			Sales	401		2,800
			Sales Tax Payable	231		168
		(Record cash sales)

Table (7)

Description:

• Cash is an asset account. Since cash is received, asset account increased, and an increase in asset is debited.
• Sales is a revenue account. Since revenues and gains increase equity, equity value is increased, and an increase in equity is credited.
• Sales Tax Payable is a liability account. Since the payable increased, the liability increased, and an increase in liability is credited.

Working Note 8:

Compute sales tax payable amount.

$\begin{array}{c}\text{Sales tax payable = Sales×Sales tax percentage}\\ \text{= \$2,800×6\%}\\ \text{= \$168}\end{array}$

Working Note 9:

Compute cash amount (Refer to Working Note 8 for value of sales tax payable).

$\begin{array}{c}\text{Cash = Sales+Sales tax payable}\\ \text{= \$2,800+\$168}\\ \text{= \$2,968}\end{array}$

Transaction on December 14:

Page: 20
Date		Account Titles and Explanation		Post Ref.	Debit ($)	Credit ($)
20--
December	14	Cash		101	822.56
		Bank Credit Card Expense		513	25.44
			Sales	401		800.00
			Sales Tax Payable	231		48.00
		(Record credit card sale)

Table (8)

Description:

• Cash is an asset account. Since cash is received, asset account increased, and an increase in asset is debited.
• Bank Credit Card Expense is an expense account. Since expenses and losses decrease equity, equity value is decreased, and a decrease in equity is debited.
• Sales is a revenue account. Since revenues and gains increase equity, equity value is increased, and an increase in equity is credited.
• Sales Tax Payable is a liability account. Since the payable increased, the liability increased, and an increase in liability is credited.

Working Note 10:

Compute sales tax payable amount.

$\begin{array}{c}\text{Sales tax payable = Sales×Sales tax percentage}\\ \text{= \$800×6\%}\\ \text{= \$48}\end{array}$

Working Note 11:

Compute bank credit card expense amount (Refer to Working Note 10 for value of sales tax payable).

$\begin{array}{c}\text{Bank credit card expense = }\left\{\begin{array}{l}\left(\text{Sales+Sales tax payable}\right)\text{×}\\ \text{Bank credit card fee percentage}\end{array}\right\}\\ \text{= }\left(\text{\$800+\$48}\right)\times 3\%\\ \text{= \$25}\text{.44}\end{array}$

Working Note 12:

Compute amount of cash received (Refer to Working Note 10 for value of sales tax payable and Working Note 11 for value of bank credit card expense).

$\begin{array}{c}\text{Cash = }\left\{\begin{array}{l}\left(\text{Sales+Sales tax payable}\right)–\\ \text{Bank credit card expense}\end{array}\right\}\\ \text{= }\left(\text{\$800}\text{.00+\$48}\text{.00}\right)–\$25.44\\ \text{= \$822}\text{.56}\end{array}$

Transaction on December 20:

Page: 20
Date		Account Titles and Explanation		Post. Ref.	Debit ($)	Credit ($)
20--
December	20	Cash		101	1,110
			Accounts Receivable, TW	122/✓		1,110
		(Record cash received for sales on account)

Table (9)

Description:

• Cash is an asset account. Since cash is received, asset account increased, and an increase in asset is debited.
• Accounts Receivable, TW is an asset account. Since amount to be received has decreased, asset account decreased, and a decrease in asset is credited.

Transaction on December 21:

Page: 20
Date		Account Titles and Explanation		Post Ref.	Debit ($)	Credit ($)
20--
December	21	Sales Returns and Allowances		401.1	22.00
		Sales Tax Payable		231	1.32
			Accounts Receivable, A Manufacturing	122/✓		23.32
		(Record merchandise returned)

Table (10)

Description:

• Sales Returns and Allowances is a contra-revenue account, and contra-revenue accounts decrease the equity value, and a decrease in equity is debited.
• Sales Tax Payable is a liability account. Since the payable decreased due to returns, the liability decreased, and a decrease in liability is debited.
• Accounts Receivable, A Manufacturing is an asset account. Since inventory is returned, amount to be received has decreased, asset account is decreased, and a decrease in asset is credited.

Working Note 13:

Compute sales tax payable amount.

$\begin{array}{c}\text{Sales tax payable = Sales returns×Sales tax percentage}\\ \text{= \$22×6\%}\\ \text{= \$1}\text{.32}\end{array}$

Working Note 14:

Compute accounts receivable amount (Refer to Working Note 13 for value of sales tax payable).

$\begin{array}{c}\begin{array}{l}\text{Accounts receivable, }\\ \text{A Manufacturing}\end{array}\}\text{ = Sales returns+Sales tax payable}\\ \text{= \$22}\text{.00+\$1}\text{.32}\\ \text{= \$23}\text{.32}\end{array}$

Transaction on December 21:

Page: 20
Date		Account Titles and Explanation		Post Ref.	Debit ($)	Credit ($)
20--
December	21	Cash		101	3,392
			Sales	401		3,200
			Sales Tax Payable	231		192
		(Record cash sales)

Table (11)

Description:

• Cash is an asset account. Since cash is received, asset account increased, and an increase in asset is debited.
• Sales is a revenue account. Since revenues and gains increase equity, equity value is increased, and an increase in equity is credited.
• Sales Tax Payable is a liability account. Since the payable increased, the liability increased, and an increase in liability is credited.

Working Note 15:

Compute sales tax payable amount.

$\begin{array}{c}\text{Sales tax payable = Sales×Sales tax percentage}\\ \text{= \$3,200×6\%}\\ \text{= \$192}\end{array}$

Working Note 16:

Compute cash amount (Refer to Working Note 15 for value of sales tax payable).

$\begin{array}{c}\text{Cash = Sales+Sales tax payable}\\ \text{= \$3,200+\$192}\\ \text{= \$3,392}\end{array}$

Transaction on December 24:

Page: 20
Date		Account Titles and Explanation		Post. Ref.	Debit ($)	Credit ($)
20--
December	24	Cash		101	2,000
			Accounts Receivable, RC	122/✓		2,000
		(Record cash received for sales on account)

Table (12)

Description:

• Cash is an asset account. Since cash is received, asset account increased, and an increase in asset is debited.
• Accounts Receivable, RC is an asset account. Since amount to be received has decreased, asset account decreased, and a decrease in asset is credited.

2.

To determine

Post the journalized entries into the accounts of the general ledger, and the customer accounts in accounts receivable ledger.

Explanation of Solution

Posting transactions: The process of transferring the journalized transactions into the accounts of the ledger is known as posting the transactions.

Post the journalized entries into the accounts of the general ledger.

ACCOUNT    Cash                                                                       ACCOUNT NO. 101
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20--
December	1	Balance	✓			9,862.00
	1		J20	1,360.00		11,222.00
	2		J20	382.00		11,604.00
	7		J20	3,349.60		14,953.60
	7		J20	1,028.20		15,981.80
	8		J20	880.00		16,861.80
	14		J20	2,968.00		19,892.80
	14		J20	822.56		20,652.36
	20		J20	1,110.00		21,762.36
	21		J20	3,392.00		25,154.36
	24		J20	2,000.00		27,154.36

Table (13)

ACCOUNT    Accounts Receivable                                             ACCOUNT NO. 122
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20--
December	1	Balance	✓			9,352.00
	1		J20		1,360.00	7,992.00
	2		J20		382.00	7,610.00
	8		J20		880.00	6,730.00
	11		J20		63.60	6,666.40
	20		J20		1,110.00	5,556.40
	21		J20		23.32	5,533.08
	24		J20		2,000.00	3,533.08

Table (14)

ACCOUNT    Sales Tax Payable                                                 ACCOUNT NO. 231
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20--
December	7		J20		189.60		189.60
	7		J20		60.00		249.60
	11		J20	3.60			246.00
	14		J20		168.00		414.00
	14		J20		48.00		462.00
	21		J20	1.32			460.68
	21		J20		192.00		652.68

Table (15)

ACCOUNT    Sales                                                                         ACCOUNT NO. 401
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20--
December	7		J20		3,160.00		3,160.00
	7		J20		1,000.00		4,160.00
	14		J20		2,800.00		6,960.00
	14		J20		800.00		7,760.00
	21		J20		3,200.00		10,960.00

Table (16)

ACCOUNT    Sales Returns and Allowances                            ACCOUNT NO. 401.1
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20--
December	11		J20	60.00		60.00
	21		J20	22.00		82.00

Table (17)

ACCOUNT    Bank Credit Card Expense                                     ACCOUNT NO. 513
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20--
December	7		J20	31.80		31.80
	14		J20	25.44		57.24

Table (18)

Post the journalized entries into the customer accounts in accounts receivable ledger.

NAME          MA
ADDRESS
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance ($)
20--
December	1	Balance	✓			2,480.00
	1		J20		1,360.00	1,272.00
	11		J20		63.60	1,056.40

Table (19)

NAME          A Manufacturing
ADDRESS
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance ($)
20--
December	1	Balance	✓			982.00
	2		J20		382.00	600.00
	21		J20		23.32	576.68

Table (20)

NAME          JG
ADDRESS
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance ($)
20--
December	1	Balance	✓			880.00
	8		J20		880.00	0

Table (21)

NAME          TW
ADDRESS
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance ($)
20--
December	1	Balance	✓			1,810.00
	20		J20		1,110.00	700.00

Table (22)

NAME          RC
ADDRESS
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance ($)
20--
December	1	Balance	✓			3,200.00
	24		J20		2,000.00	1,200.00

Table (23)