Chapter 12, Problem 7SPA

1.

To determine

Prepare the given transactions in the cash receipts journal and verify the total column and rule the column and use the general journal to record the sales returns and allowances.

Explanation of Solution

Cash Receipts Journal:  It is a special book where only cash receipts transactions that are received from customers, merchandise sales and service made in cash and collection of accounts receivable are recorded.

The following are the some examples of transactions that would be recorded in the Other Accounts credit column of the cash receipts journal:

• • Cash received as interest on notes payable
• • Interest revenue received from debtors
• • Cash receipts from bank loans
• • Cash receipts for capital investments

Prepare the given transactions in the cash receipts journal and verify the total column and rule the column and use the general journal to record the sales returns and allowances:

Table (1)

Verification of total debit and credit column:

$\begin{array}{l}\text{Total Debit = Total Credit}\\ \left(\begin{array}{l}\$17,292.36\\ +\$57.24\end{array}\right)=\left(\begin{array}{l}\$5,732.00+\\ \$10,960.00+\$657.60\end{array}\right)\\ =\$17,349.6=\$17,349.6\end{array}$ 

Working note 1:

Calculate the amount of cash on dated 7^th December:

$\begin{array}{c}\begin{array}{l}\text{Cash}\left(\text{debit}\right)\text{on}\\ {\text{ dated 7}}^{\text{th}}\text{December}\end{array}\}=\left(\text{Cash sales + 6\% on sales tax}\right)\\ =\left[\$3,160+\left(6\%\times \$3,160\right)\right]\\ =\left[\$3,160+\$189.60\right]\\ =\$3,349.60\end{array}$

Working note 2:

Calculate the amount of bank credit card expense on dated 7^th December:

$\begin{array}{c}\begin{array}{l}\text{Bank credit card expense }\\ {\text{on dated 7}}^{\text{th}}\text{December}\end{array}\}=\left[\begin{array}{l}\left(\text{Sales + 6\% on sales tax}\right)\times \\ \text{Credit card fee \%}\end{array}\right]\\ =\left[\$1,000+\left(6\%\times \$1,000\right)\right]\times 3\%\\ =\left[\$1,000+\$60\right]\times 3\%\\ =\$31.80\end{array}$

Working note 3:

Calculate the amount of cash on dated 7^th December:

$\begin{array}{c}\begin{array}{l}\text{Cash}\left(\text{debit}\right)\text{on}\\ {\text{ dated 7}}^{\text{th}}\text{December}\end{array}\}=\left[\begin{array}{l}\left(\text{Cash sales + 6\% on sales tax}\right)-\\ \text{Bank credit card expense}\end{array}\right]\\ =\left[\$1,000+\left(6\%\times \$1,000\right)-\$31.80\right]\\ =\left[\$1,000+\$60-\$31.80\right]\\ =\$1,028.20\end{array}$

Working note 4:

Calculate the amount of cash on dated 14^th December:

$\begin{array}{c}\begin{array}{l}\text{Cash}\left(\text{debit}\right)\text{on}\\ {\text{ dated 14}}^{\text{th}}\text{December}\end{array}\}=\left(\text{Cash sales + 6\% on sales tax}\right)\\ =\left[\$2,800+\left(6\%\times \$2,800\right)\right]\\ =\left[\$2,800+\$168\right]\\ =\$2,968\end{array}$

Working note 5:

Calculate the amount of bank credit card expense on dated 14^th December:

$\begin{array}{c}\begin{array}{l}\text{Bank credit card expense }\\ {\text{on dated 14}}^{\text{th}}\text{December}\end{array}\}=\left[\begin{array}{l}\left(\text{Sales + 6\% on sales tax}\right)\times \\ \text{Credit card fee \%}\end{array}\right]\\ =\left[\$800+\left(6\%\times \$800\right)\right]\times 3\%\\ =\left[\$800+\$48\right]\times 3\%\\ =\$25.44\end{array}$

Working note 6:

Calculate the amount of cash on dated 14^th December:

$\begin{array}{c}\begin{array}{l}\text{Cash}\left(\text{debit}\right)\text{on}\\ {\text{ dated 14}}^{\text{th}}\text{December}\end{array}\}=\left[\begin{array}{l}\left(\text{Cash sales + 6\% on sales tax}\right)-\\ \text{Bank credit card expense}\end{array}\right]\\ =\left[\$800+\left(6\%\times \$800\right)-\$25.44\right]\\ =\left[\$800+\$48-\$25.44\right]\\ =\$822.56\end{array}$

Working note 7:

Calculate the amount of cash on dated 21^st December:

$\begin{array}{c}\begin{array}{l}\text{Cash}\left(\text{debit}\right)\text{on}\\ {\text{ dated 21}}^{\text{st}}\text{December}\end{array}\}=\left(\text{Cash sales + 6\% on sales tax}\right)\\ =\left[\$3,200+\left(6\%\times \$3,200\right)\right]\\ =\left[\$3,200+\$192\right]\\ =\$3,392\end{array}$

Use the general journal to record the sales returns and allowances:

General Journal: It is a book where all the monetary transactions are recorded in the form of journal entries on the date of their occurrence in a chronological order.

Transaction on December 11:

General Journal
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
		(To record the merchandise returned)

Table (2)

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 1:

Compute the 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 2:

Compute the accounts receivable amount.

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

Transaction on December 21:

General Journal
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
		(To record the 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, 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 1:

Compute the 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 2:

Compute the accounts receivable amount;

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

2.

To determine

Post the prepared journal to the general ledger, and to the 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 prepared journals to the general ledger:

ACCOUNT    Cash                                                                       ACCOUNT NO. 101
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20--
December	1	Balance	✓			9,862.00
	31		CR10	17,292.36		27,154.36

Table (4)

ACCOUNT    Accounts Receivable                                             ACCOUNT NO. 122
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20--
December	1	Balance	✓			9,352.00
	11		J8		63.60	9,288.40
	21		J8		23.32	9,265.08
	31		CR10		5,732.00	3,533.08

Table (5)

ACCOUNT    Sales Tax Payable                                                 ACCOUNT NO. 231
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20--
December	11		J8	3.60		3.60
	21		J8	1.32		4.92
	31		CR10		657.60		652.68

Table (6)

ACCOUNT    Sales                                                                         ACCOUNT NO. 401
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20--
December	31		CR10		10,960.00		10,960.00

Table (7)

ACCOUNT    Sales Returns and Allowances                            ACCOUNT NO. 401.1
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20--
December	11		J8	60.00		60.00
	21		J8	22.00		82.00

Table (8)

ACCOUNT    Bank Credit Card Expense                                     ACCOUNT NO. 513
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance
						Debit ($)	Credit ($)
20--
December	31		CR10	57.24		57.24

Table (9)

Post the journals to the accounts receivable ledger.

NAME          MA
ADDRESS  233 W 11th Avenue, D, Mi 59500-1154
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance ($)
20--
December	1	Balance	✓			2,480.00
	1		CR10		1,360.00	1,120.00
	11		J8		63.60	1,056.40

Table (10)

NAME          A Manufacturing
ADDRESS 284 W 88 Street, D, Mi 59522-1168
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance ($)
20--
December	1	Balance	✓			982.00
	2		CR10		382.00	600.00
	21		J8		23.32	576.68

Table (11)

NAME          JG
ADDRESS P.O. Box 864, D, Mi 59552-0864
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance ($)
20--
December	1	Balance	✓			880.00
	8		CR10		880.00	0

Table (12)

NAME          TW
ADDRESS   100 N w S Street., D, Mi 59210-1337
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance ($)
20--
December	1	Balance	✓			1,810.00
	20		CR10		1,110.00	700.00

Table (13)

NAME          RC
ADDRESS 11312 Fourteenth Avenue South, D, Mi 59221-1142
Date		Item	Post. Ref.	Debit ($)	Credit ($)	Balance ($)
20--
December	1	Balance	✓			3,200.00
	24		CR10		2,000.00	1,200.00

Table (14)