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We know that all merchandising business will purchase merchandise to sell, and in order for them to make money they have to be able to sell it. In order for a merchandising company to keep track of their purchases and sales, they must record it in their prospective accounts. Every company will have two accounts called sales and purchases. Within those accounts are accounts called contra accounts. Contra Accounts are accounts that reduce the related value of an account on a financial statement. The chart below shows the main accounts and the contra accounts related with them.
When merchandise is sold, the revenue account for a merchandising business is called sales. The contra accounts for sales, will take away from the total value of the sales. Sales discounts occur when a business owner provides a discount to the buyer and will take away from the total sale of the goods. Sales returns and allowances is an account that will accumulate the amount of returns and amounts that you paid back to customers. The amount of your Revenue Sales Discounts and Sales Returns and Allowances = Net Sales T Accounts for Sales Sales Decrease Normal Balance Sales Discounts Normal Decrease Balance Sales Returns & Allowances Normal Decrease Balance
Sales Tax Payable Laws of most provinces require that a tax be collected from customers for each sale made. A tax on a sale of merchandise or services is called a sales tax. Sales taxes are usually charged as a percentage of the selling price. To calculate sales tax payable use the following formula: Price of Goods X Sales Tax Rate = Sales Tax T- Accounts for Sales Tax Payable Sales Tax Payable Normal Balance Increase
Decrease
General Journal Entries for Sales: Cash Sale and Credit Card Sales Jan 15 Sold $15 000.00 + tax at 5% worth of Merchandise for Cash. T15 GENERAL JOURNAL
DATE ACCOUNT TITLE DOC. NO. POST. REF.
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Sale on Account Jan 15 Sold $15 000.00 + tax at 5% worth of Merchandise to J. LeBlanc on account. SI15
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On the other side of the chart is Purchases. The contra purchase accounts are Purchase Discounts and Purchase Returns and Allowances. Purchase discounts keep track of all of the discounts you obtained while purchasing your merchandise. Purchases returns and allowances will then keep track of all the amounts and returns that you made throughout the fiscal period. Your Purchases Purchase Discounts and Purchase Returns and Allowances = Net Purchases. T- Accounts for Purchases Purchases Normal Balance Decrease Purchase Discounts Decrease Normal Balance Purchase Returns & Allowances Decrease Normal Balance
General Journal Entries for Purchases: Purchases using Cash Jan 15 Bought $15 000.00 worth of Merchandise for Cash. C15 GENERAL JOURNAL
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15 000.00 15 000.00
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Sale on Account Jan 15 Bought $15 000.00 worth of Merchandise on account. PI15 GENERAL JOURNAL
DATE ACCOUNT TITLE DOC. NO. POST. REF.
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15 700.00 15 000.00
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Assignment: Use the following General Journal Pages to complete the following assignments. Once you have journalized all of the transactions, go through and make sure that our DR=CR and rule your totals properly. Century 21 (OLD) Page 254 3-1 Century 21 Page 268 14-1
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