Chapter 10, Problem 11SPB

CASH RECEIPTS TRANSACTIONS Color Florists, a retail business, had the following cash receipts during January 20--. The sales tax is 5%.

REQUIRED

1. 1. Record the transactions starting on page 20 of a general journal.
2. 2. Post from the journal to the general ledger and accounts receivable ledger accounts. Use account numbers as shown in the chapter.

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 January 1:

Page: 20
Date		Account Titles and Explanations		Post. Ref.	Debit ($)	Credit ($)
20--
January	1	Cash		101	880
			Accounts Receivable, RB	122/✓		880
		(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, RB is an asset account. Since amount to be received has decreased, asset account decreased, and a decrease in asset is credited.

Transaction on January 3:

Page: 20
Date		Account Titles and Explanations		Post. Ref.	Debit ($)	Credit ($)
20--
January	3	Cash		101	271
			Accounts Receivable, CH	122/✓		271
		(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, CH is an asset account. Since amount to be received has decreased, asset account decreased, and a decrease in asset is credited.

Transaction on January 5:

Page: 20
Date		Account Titles and Explanation		Post Ref.	Debit ($)	Credit ($)
20--
January	5	Cash		101	2,940
			Sales	401		2,800
			Sales Tax Payable	231		140
		(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.

$\begin{array}{c}\text{Sales tax payable = Sales×Sales tax percentage}\\ \text{= \$2,800×5\%}\\ \text{= \$140}\end{array}$

Working Note 2:

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

$\begin{array}{c}\text{Cash = Sales+Sales tax payable}\\ \text{= \$2,800+\$140}\\ \text{= \$2,940}\end{array}$

Transaction on January 5:

Page: 20
Date		Account Titles and Explanation		Post Ref.	Debit ($)	Credit ($)
20--
January	5	Cash		101	1,222.20
		Bank Credit Card Expense		513	37.80
			Sales	401		1,200.00
			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.

$\begin{array}{c}\text{Sales tax payable = Sales×Sales tax percentage}\\ \text{= \$1,200×5\%}\\ \text{= \$60}\end{array}$

Working Note 4:

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

$\begin{array}{c}\text{Bank credit card expense = }\left\{\begin{array}{l}\left(\text{Sales+Sales tax payable}\right)\text{×}\\ \text{Bank credit card fee percentage}\end{array}\right\}\\ \text{= }\left(\text{\$1,200+\$60}\right)\times 3\%\\ \text{= \$37}\text{.80}\end{array}$

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).

$\begin{array}{c}\text{Cash = }\left\{\begin{array}{l}\left(\text{Sales+Sales tax payable}\right)–\\ \text{Bank credit card expense}\end{array}\right\}\\ \text{= }\left(\text{\$1,200}\text{.00+\$60}\text{.00}\right)–\$37.80\\ \text{= \$1,222}\text{.20}\end{array}$

Transaction on January 8:

Page: 20
Date		Account Titles and Explanations		Post. Ref.	Debit ($)	Credit ($)
20--
January	8	Cash		101	912
			Accounts Receivable, JS	122/✓		912
		(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, JS is an asset account. Since amount to be received has decreased, asset account decreased, and a decrease in asset is credited.

Transaction on January 11:

Page: 20
Date		Account Titles and Explanation		Post Ref.	Debit ($)	Credit ($)
20--
January	11	Sales Returns and Allowances		401.1	40
		Sales Tax Payable		231	2
			Accounts Receivable, RB	122/✓		42
		(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, RB 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.

$\begin{array}{c}\text{Sales tax payable = Sales returns×Sales tax percentage}\\ \text{= \$40×5\%}\\ \text{= \$2}\end{array}$

Working Note 7:

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

$\begin{array}{c}\text{Accounts receivable, RB = Sales returns+Sales tax payable}\\ \text{= \$40+\$2}\\ \text{= \$42}\end{array}$

Transaction on January 12:

Page: 20
Date		Account Titles and Explanation		Post Ref.	Debit ($)	Credit ($)
20--
January	12	Cash		101	3,255
			Sales	401		3,100
			Sales Tax Payable	231		155
		(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.

$\begin{array}{c}\text{Sales tax payable = Sales×Sales tax percentage}\\ \text{= \$3,100×5\%}\\ \text{= \$155}\end{array}$

Working Note 9:

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

$\begin{array}{c}\text{Cash = Sales+Sales tax payable}\\ \text{= \$3,100+\$155}\\ \text{= \$3,255}\end{array}$

Transaction on January 12:

Page: 20
Date		Account Titles and Explanation		Post Ref.	Debit ($)	Credit ($)
20--
January	12	Cash		101	1,935.15
		Bank Credit Card Expense		513	59.85
			Sales	401		1,900.00
			Sales Tax Payable	231		95.00
		(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.

$\begin{array}{c}\text{Sales tax payable = Sales×Sales tax percentage}\\ \text{= \$1,900×5\%}\\ \text{= \$95}\end{array}$

Working Note 11:

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

$\begin{array}{c}\text{Bank credit card expense = }\left\{\begin{array}{l}\left(\text{Sales+Sales tax payable}\right)\text{×}\\ \text{Bank credit card fee percentage}\end{array}\right\}\\ \text{= }\left(\text{\$1,900+\$95}\right)\times 3\%\\ \text{= \$59}\text{.85}\end{array}$

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).

$\begin{array}{c}\text{Cash = }\left\{\begin{array}{l}\left(\text{Sales+Sales tax payable}\right)–\\ \text{Bank credit card expense}\end{array}\right\}\\ \text{= }\left(\text{\$1,900}\text{.00+\$95}\text{.00}\right)–\$59.85\\ \text{= \$1,935}\text{.15}\end{array}$

Transaction on January 15:

Page: 20
Date		Account Titles and Explanations		Post. Ref.	Debit ($)	Credit ($)
20--
January	15	Cash		101	1,100
			Accounts Receivable, RZ	122/✓		1,100
		(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, RZ is an asset account. Since amount to be received has decreased, asset account decreased, and a decrease in asset is credited.

Transaction on January 18:

Page: 20
Date		Account Titles and Explanation		Post Ref.	Debit ($)	Credit ($)
20--
January	18	Sales Returns and Allowances		401.1	31.00
		Sales Tax Payable		231	1.55
			Accounts Receivable, RZ	122/✓		32.55
		(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, RZ 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.

$\begin{array}{c}\text{Sales tax payable = Sales returns×Sales tax percentage}\\ \text{= \$31×5\%}\\ \text{= \$1}\text{.55}\end{array}$

Working Note 14:

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

$\begin{array}{c}\text{Accounts receivable, RZ = Sales returns+Sales tax payable}\\ \text{= \$31}\text{.00+\$1}\text{.55}\\ \text{= \$32}\text{.55}\end{array}$

Transaction on January 19:

Page: 20
Date		Account Titles and Explanation		Post Ref.	Debit ($)	Credit ($)
20--
January	19	Cash		101	2,341.50
			Sales	401		2,230.00
			Sales Tax Payable	231		111.50
		(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.

$\begin{array}{c}\text{Sales tax payable = Sales×Sales tax percentage}\\ \text{= \$2,230×5\%}\\ \text{= \$111}\text{.50}\end{array}$

Working Note 16:

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

$\begin{array}{c}\text{Cash = Sales+Sales tax payable}\\ \text{= \$2,230}\text{.00+\$111}\text{.50}\\ \text{= \$2,341}\text{.50}\end{array}$

Transaction on January 25:

Page: 20
Date		Account Titles and Explanations		Post. Ref.	Debit ($)	Credit ($)
20--
January	25	Cash		101	318
			Accounts Receivable, D Manufacturing	122/✓		318
		(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, D Manufacturing is an asset account. Since amount to be received has decreased, asset account decreased, and a decrease in asset is credited.

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--
January	1	Balance	✓			2,890.75
	1		J20	880.00		3,770.75
	3		J20	271.00		4,041.75
	5		J20	2,940.00		6,981.75
	5		J20	1,222.20		8,203.95
	8		J20	912.00		9,115.95
	12		J20	3,255.00		12,370.95
	12		J20	1,935.15		14,306.10
	15		J20	1,100.00		15,406.10
	19		J20	2,341.50		17,747.60
	25		J20	318.00		18,065.60

Table (13)

ACCOUNT    Accounts Receivable                                             ACCOUNT NO. 122
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20--
January	1	Balance	✓			6,300.00
	1		J20		880.00	5,420.00
	3		J20		271.00	5,149.00
	8		J20		912.00	4,237.00
	11		J20		42.00	4,195.00
	15		J20		1,100.00	3,095.00
	18		J20		32.55	3,062.45
	25		J20		318.00	2,744.45

Table (14)

ACCOUNT    Sales Tax Payable                                                 ACCOUNT NO. 231
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20--
January	5		J20		140.00		140.00
	5		J20		60.00		200.00
	11		J20	2.00			198.00
	12		J20		155.00		353.00
	12		J20		95.00		448.00
	18		J20	1.55			446.45
	19		J20		111.50		557.95

Table (15)

ACCOUNT    Sales                                                                         ACCOUNT NO. 401
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20--
January	5		J20		2,800.00		2,800.00
	5		J20		1,200.00		4,000.00
	12		J20		3,100.00		7,100.00
	12		J20		1,900.00		9,000.00
	19		J20		2,230.00		11,230.00

Table (16)

ACCOUNT    Sales Returns and Allowances                            ACCOUNT NO. 401.1
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20--
January	11		J20	40.00		40.00
	18		J20	31.00		71.00

Table (17)

ACCOUNT    Bank Credit Card Expense                                     ACCOUNT NO. 513
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20--
January	5		J20	37.80		37.80
	12		J20	59.85		97.65

Table (18)

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

NAME          RB
ADDRESS
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance ($)
20--
January	1	Balance	✓			1,400.00
	1		J20		880.00	520.00
	11		J20		42.00	478.00

Table (19)

NAME          D Manufacturing
ADDRESS
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance ($)
20--
January	1	Balance	✓			318.00
	25		J20		318.00	0

Table (20)

NAME          CH
ADDRESS
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance ($)
20--
January	1	Balance	✓			815.00
	3		J20		271.00	544.00

Table (21)

NAME          JS
ADDRESS
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance ($)
20--
January	1	Balance	✓			1,481.00
	8		J20		912.00	569.00

Table (22)

NAME          RZ
ADDRESS
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance ($)
20--
January	1	Balance	✓			2,286.00
	15		J20		1,100.00	1,186.00
	18		J20		32.55	1,153.45

Table (23)