Chapter 10, Problem 11SPB

SALES AND CASH RECEIPTS TRANSACTIONS Paul Jackson owns a retail business. The following sales, returns, and cash receipts are for April 20--. There is a 7% sales tax.

REQUIRED

1. 1. Record the transactions starring on page 7 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 sales and 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 sales and cash receipt transactions.

 Transaction on April 1:

Page: 7
Date		Account Titles and Explanation		Post Ref.	Debit ($)	Credit ($)
20--
April	1	Accounts Receivable, OLM		122/✓	2,247
			Sales	401		2,100
			Sales Tax Payable	231		147
		(Record credit sale)

Table (1)

Description:

• Accounts Receivable, OLM is an asset account. Since sales is made on account, the receivables 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.

$\begin{array}{c}\text{Sales tax payable = Sales×Sales tax percentage}\\ \text{= \$2,100×7\%}\\ \text{= \$147}\end{array}$

Working Note 2:

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

$\begin{array}{c}\text{Accounts receivable, OLM = Sales+Sales tax payable}\\ \text{= \$2,100+\$147}\\ \text{= \$2,247}\end{array}$

Transaction on April 3:

Page: 7
Date		Account Titles and Explanation		Post Ref.	Debit ($)	Credit ($)
20--
April	3	Accounts Receivable, AP		122/✓	1,070.00
			Sales	401		1,000.00
			Sales Tax Payable	231		70.00
		(Record credit sale)

Table (2)

Description:

• Accounts Receivable, AP is an asset account. Since sales is made on account, the receivables 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 3:

Compute sales tax payable amount.

$\begin{array}{c}\text{Sales tax payable = Sales×Sales tax percentage}\\ \text{= \$1,000×7\%}\\ \text{= \$70}\end{array}$

Working Note 4:

Compute accounts receivable amount (Refer to Working Note 3 for value of sales tax payable).

$\begin{array}{c}\text{Accounts receivable, AP = Sales+Sales tax payable}\\ \text{= \$1,000+\$70}\\ \text{= \$1,070}\end{array}$

Transaction on April 6:

Page: 7
Date		Account Titles and Explanation		Post Ref.	Debit ($)	Credit ($)
20--
April	6	Sales Returns and Allowances		401.1	50.00
		Sales Tax Payable		231	3.50
			Accounts Receivable, OLM	122/✓		53.50
		(Record merchandise returned)

Table (3)

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, OLM 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 5:

Compute sales tax payable amount.

$\begin{array}{c}\text{Sales tax payable = Sales returns×Sales tax percentage}\\ \text{= \$50×7\%}\\ \text{= \$3}\text{.50}\end{array}$

Working Note 6:

Compute accounts receivable amount (Refer to Working Note 5 for value of sales tax payable).

$\begin{array}{c}\text{Accounts receivable, OLM = Sales returns+Sales tax payable}\\ \text{= \$50}\text{.00+\$3}\text{.50}\\ \text{= \$53}\text{.50}\end{array}$

Transaction on April 7:

Page: 7
Date		Account Titles and Explanation		Post Ref.	Debit ($)	Credit ($)
20--
April	7	Cash		101	3,466.80
			Sales	401		3,240.00
			Sales Tax Payable	231		226.80
		(Record cash sales)

Table (4)

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 7:

Compute sales tax payable amount.

$\begin{array}{c}\text{Sales tax payable = Sales×Sales tax percentage}\\ \text{= \$3,240×7\%}\\ \text{= \$226}\text{.80}\end{array}$

Working Note 8:

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

$\begin{array}{c}\text{Cash = Sales+Sales tax payable}\\ \text{= \$3,240}\text{.00+\$226}\text{.80}\\ \text{= \$3,466}\text{.80}\end{array}$

Transaction on April 9:

Page: 7
Date		Account Titles and Explanations		Post. Ref.	Debit ($)	Credit ($)
April	9	Cash		101	2,193.50
			Accounts Receivable, OLM	122/✓		2,193.50
		(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, OLM is an asset account. Since amount to be received has decreased, asset account decreased, and a decrease in asset is credited.

Working Note 9:

Compute accounts receivable value (Refer to Working Notes 2 and 6 for both the values).

$\begin{array}{c}\text{Accounts receivable, OLM = }\left(\begin{array}{l}\text{Accounts receivable debit value–}\\ \text{Accounts receivable credit value}\end{array}\right)\\ \text{= \$2,247}\text{.00–\$53}\text{.50}\\ \text{= \$2,193}\text{.50}\end{array}$

Transaction on April 12:

Page: 7
Date		Account Titles and Explanation		Post Ref.	Debit ($)	Credit ($)
20--
April	12	Accounts Receivable, MR		122/✓	1,048.60
			Sales	401		980.00
			Sales Tax Payable	231		68.60
		(Record credit sale)

Table (6)

Description:

• Accounts Receivable, MR is an asset account. Since sales is made on account, the receivables 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 10:

Compute sales tax payable amount.

$\begin{array}{c}\text{Sales tax payable = Sales×Sales tax percentage}\\ \text{= \$980×7\%}\\ \text{= \$68}\text{.60}\end{array}$

Working Note 11:

Compute accounts receivable amount (Refer to Working Note 10 for value of sales tax payable).

$\begin{array}{c}\text{Accounts receivable, MR = Sales+Sales tax payable}\\ \text{= \$980}\text{.00+\$68}\text{.60}\\ \text{= \$1,048}\text{.60}\end{array}$

Transaction on April 14:

Page: 7
Date		Account Titles and Explanation		Post Ref.	Debit ($)	Credit ($)
20--
April	14	Cash		101	2,332.60
			Sales	401		2,180.00
			Sales Tax Payable	231		152.60
		(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 12:

Compute sales tax payable amount.

$\begin{array}{c}\text{Sales tax payable = Sales×Sales tax percentage}\\ \text{= \$2,180×7\%}\\ \text{= \$152}\text{.60}\end{array}$

Working Note 13:

Compute cash amount (Refer to Working Note 12 for value of sales tax payable).

$\begin{array}{c}\text{Cash = Sales+Sales tax payable}\\ \text{= \$2,180}\text{.00+\$152}\text{.60}\\ \text{= \$2,332}\text{.60}\end{array}$

Transaction on April 17:

Page: 7
Date		Account Titles and Explanation		Post Ref.	Debit ($)	Credit ($)
20--
April	17	Sales Returns and Allowances		401.1	40.00
		Sales Tax Payable		231	2.80
			Accounts Receivable, MR	122/✓		42.80
		(Record merchandise returned)

Table (8)

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, MR 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 14:

Compute sales tax payable amount.

$\begin{array}{c}\text{Sales tax payable = Sales returns×Sales tax percentage}\\ \text{= \$40×7\%}\\ \text{= \$2}\text{.80}\end{array}$

Working Note 15:

Compute accounts receivable amount (Refer to Working Note 14 for value of sales tax payable).

$\begin{array}{c}\text{Accounts receivable, MR = Sales returns+Sales tax payable}\\ \text{= \$40}\text{.00+\$2}\text{.80}\\ \text{= \$42}\text{.80}\end{array}$

Transaction on April 19:

Page: 7
Date		Account Titles and Explanation		Post Ref.	Debit ($)	Credit ($)
20--
April	19	Accounts Receivable, KM		122/✓	1,091.40
			Sales	401		1,020.00
			Sales Tax Payable	231		71.40
		(Record credit sale)

Table (9)

Description:

• Accounts Receivable, KM is an asset account. Since sales is made on account, the receivables 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 16:

Compute sales tax payable amount.

$\begin{array}{c}\text{Sales tax payable = Sales×Sales tax percentage}\\ \text{= \$1,020×7\%}\\ \text{= \$71}\text{.40}\end{array}$

Working Note 17:

Compute accounts receivable amount (Refer to Working Note 16 for value of sales tax payable).

$\begin{array}{c}\text{Accounts receivable, KM = Sales+Sales tax payable}\\ \text{= \$1,020}\text{.00+\$71}\text{.40}\\ \text{= \$1,091}\text{.40}\end{array}$

Transaction on April 21:

Page: 7
Date		Account Titles and Explanation		Post Ref.	Debit ($)	Credit ($)
20--
April	21	Cash		101	2,782
			Sales	401		2,600
			Sales Tax Payable	231		182
		(Record cash sales)

Table (10)

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 18:

Compute sales tax payable amount.

$\begin{array}{c}\text{Sales tax payable = Sales×Sales tax percentage}\\ \text{= \$2,600×7\%}\\ \text{= \$182}\end{array}$

Working Note 19:

Compute cash amount (Refer to Working Note 18 for value of sales tax payable).

$\begin{array}{c}\text{Cash = Sales+Sales tax payable}\\ \text{= \$2,600+\$182}\\ \text{= \$2,782}\end{array}$

Transaction on April 24:

Page: 7
Date		Account Titles and Explanation		Post Ref.	Debit ($)	Credit ($)
20--
April	24	Accounts Receivable, OLM		122/✓	984.40
			Sales	401		920.00
			Sales Tax Payable	231		64.40
		(Record credit sale)

Table (11)

Description:

• Accounts Receivable, OLM is an asset account. Since sales is made on account, the receivables 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 20:

Compute sales tax payable amount.

$\begin{array}{c}\text{Sales tax payable = Sales×Sales tax percentage}\\ \text{= \$920×7\%}\\ \text{= \$64}\text{.40}\end{array}$

Working Note 21:

Compute accounts receivable amount (Refer to Working Note 20 for value of sales tax payable).

$\begin{array}{c}\text{Accounts receivable, OLM = Sales+Sales tax payable}\\ \text{= \$920}\text{.00+\$64}\text{.40}\\ \text{= \$984}\text{.40}\end{array}$

Transaction on April 27:

Page: 7
Date		Account Titles and Explanation		Post Ref.	Debit ($)	Credit ($)
20--
April	27	Accounts Receivable, AP		122/✓	1,412.40
			Sales	401		1,320.00
			Sales Tax Payable	231		92.40
		(Record credit sale)

Table (12)

Description:

• Accounts Receivable, AP is an asset account. Since sales is made on account, the receivables 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 22:

Compute sales tax payable amount.

$\begin{array}{c}\text{Sales tax payable = Sales×Sales tax percentage}\\ \text{= \$1,320×8\%}\\ \text{= \$92}\text{.40}\end{array}$

Working Note 23:

Compute accounts receivable amount (Refer to Working Note 22 for value of sales tax payable).

$\begin{array}{c}\text{Accounts receivable, AP = Sales+Sales tax payable}\\ \text{= \$1,320}\text{.00+\$92}\text{.40}\\ \text{= \$1,412}\text{.40}\end{array}$

Transaction on April 28:

Page: 7
Date		Account Titles and Explanation		Post Ref.	Debit ($)	Credit ($)
20--
April	28	Cash		101	2,996
			Sales	401		2,800
			Sales Tax Payable	231		196
		(Record cash sales)

Table (13)

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 24:

Compute sales tax payable amount.

$\begin{array}{c}\text{Sales tax payable = Sales×Sales tax percentage}\\ \text{= \$2,800×7\%}\\ \text{= \$196}\end{array}$

Working Note 25:

Compute cash amount (Refer to Working Note 24 for value of sales tax payable).

$\begin{array}{c}\text{Cash = Sales+Sales tax payable}\\ \text{= \$2,800+\$196}\\ \text{= \$2,996}\end{array}$

Transaction on April 29:

Page: 7
Date		Account Titles and Explanations		Post. Ref.	Debit ($)	Credit ($)
April	29	Cash		101	2,186
			Accounts Receivable, MR	122/✓		2,186
		(Record cash received for sales on account)

Table (14)

Description:

• Cash is an asset account. Since cash is received, asset account increased, and an increase in asset is debited.
• Accounts Receivable, MR 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--
April	1	Balance	✓			2,864.54
	7		J7	3,466.80		6,331.34
	9		J7	2,193.50		8,524.84
	14		J7	2,332.60		10,857.44
	21		J7	2,782.00		13,639.44
	28		J7	2,996.00		16,635.44
	29		J7	2,186.00		18,821.44

Table (15)

ACCOUNT    Accounts Receivable                                             ACCOUNT NO. 122
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20--
April	1	Balance	✓			2,726.25
	1		J7	2,247.00		4,973.25
	3		J7	1,070.00		6,043.25
	6		J7		53.50	5,989.75
	9		J7		2,193.50	3,796.25
	12		J7	1,048.60		4,844.85
	17		J7		42.80	4,802.05
	19		J7	1,091.40		5,893.45
	24		J7	984.40		6,877.85
	27		J7	1,412.40		8,290.25
	29		J7		2,186.00	6,104.25

Table (16)

ACCOUNT    Sales Tax Payable                                                 ACCOUNT NO. 231
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20--
April	1		J7		147.00		147.00
	3		J7		70.00		217.00
	6		J7	3.50			213.50
	7		J7		226.80		440.30
	12		J7		68.60		508.90
	14		J7		152.60		661.50
	17		J7	2.80			658.70
	19		J7		71.40		730.10
	21		J7		182.00		912.10
	24		J7		64.40		976.50
	27		J7		92.40		1,068.90
	28		J7		196.00		1,264.90

Table (17)

ACCOUNT    Sales                                                                         ACCOUNT NO. 401
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20--
April	1		J7		2,100		2,100
	3		J7		1,000		3,100
	7		J7		3,240		6,340
	12		J7		980		7,320
	14		J7		2,180		9,500
	19		J7		1,020		10,520
	21		J7		2,600		13,120
	24		J7		920		14,040
	27		J7		1,320		15,360
	28		J7		2,800		18,160

Table (18)

ACCOUNT    Sales Returns and Allowances                            ACCOUNT NO. 401.1
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20--
April	6		J7	50.00		50.00
	17		J7	40.00		90.00

Table (19)

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

NAME          OLM
ADDRESS
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance ($)
20--
April	1		J7	2,247.00		2,247.00
	6		J7		53.50	2,193.50
	9		J7		2,193.50	0
	24		J7	984.40		984.40

Table (20)

NAME          KM
ADDRESS
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance ($)
20--
April	1	Balance	✓			482.00
	19		J7	1,091.40		1,573.40

Table (21)

NAME          AP
ADDRESS
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance ($)
20--
April	3		J7	1,070.00		1,070.00
	27		J7	1,412.40		2,482.40

Table (22)

NAME          MR
ADDRESS
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance ($)
20--
April	1	Balance	✓			2,244.25
	12		J7	1,048.60		3,292.85
	17		J7		42.80	3,250.05
	29		J7		2,186.00	1,064.05

Table (23)