Acct 1 Chapter 14


Patchogue-Medford High School

Accounting I – Chapter 14 Notes

Mr. Butzke



Chapter 14 – Accounting for Sales and Cash Receipts                                                                                                                                                                                                                                                               Page 380


Objective: Students will be able to demonstrate their knowledge in distinguishing between a merchandise and service business; retailer and wholesaler. They will also demonstrate how to write-up sales and cash receipts for the sale of merchandise in a sales journal by journalizing it.



Service Business: Provides a service not a physical product. Ie Lawyer, accountant, Insurance broker, taxi cab driver, ect.


Merchandise Business: Buys goods and then sells them to a customer for profit. Ie Macys, Target, Walmart, ect.


  • A Retailer – Sells to the final user (consumer)
  • A Wholesaler – Sells to the retailer


Operating Cycle of a Merchandising Business (page 383)

  1. Purchase goods for resale
  2. Sale of goods for cash or credit
  3. Collect cash
  4. Deposit cash and pay expenses – calc net income


Merchandising Business Chart of Accounts (page 384)

  • New Accounts:
  • In the Asset section: Merchandise Inventory – All goods bought for the purpose of resale. It goes into inventory as a debit until it is sold, removed as a credit, and expensed in the cost of merchandise account. Its balance should be a debit and its account number begins with a 1 and it is a permanent account.
  • In Equity section: Retained Earnings – replaces owner’s capital. This is the earnings (profit) that the corporation earns that will be distributed to the shareholder. The other component is Capital Stock. This represents the shareholders (owner) investment in the company. There and be one or many thousands. Both begin with the number 3 in the account number and are both permanent accounts.
  • In Expense section: Cost of Merchandise – Product cost that reduces sales and is shown before operating expenses. The merchandise comes from the merchandise inventory account on the balance sheet. It is used to calculate GROSS PROFIT.
    • Net sales less Cost of Merchandise = Gross profit

          It includes purchases that relate to that months sales at what it cost you, not the sales price. Transportation, purchase discounts, purchase returns and allowances are all components of this account. This account begins with the number 5 in its account number and is a temporary account. 



                  Do problem 14-1, Recording Merchandise Transactions, page 386, WB pg 344


Sales on Account

  • Charge sales, will pay later, billed a customer. Sales made on account get recorded into the Sales Journal. Information will come from the sales slip.



Sales Slip:    Date of sale

(pg 388)      Name of customer

                  Description, price, & quantity

                  Sales tax


All credit sales must be entered into two different places, the sales journal and the Accounts Receivable Subsidiary Ledger. (page 403)

         -The A/R Sub Ledger is a detailed listing of all of the customers who owe us money. It would show the customer name, address, and history of all credit transactions with it showing a current debit balance. Information from the Sales Journal, Cash Receipts Journal, and General Journal will be posted here. The total of all of the accounts listed in the sub-ledger will equal the amount in the Controlling Account in the G/L, Accounts Receivable. (page 389)

         -The Controlling Account – in the general ledger, it is the total amount in the Accounts Receivable Account from all of the journal entries, the account balance. Journal entries from the Sales Journal, General Journal, and Cash Receipts Journal are posted here. It will be the same amount as the total of the Accounts Receivable Subsidiary Ledger. There are two controlling accounts in the G/L; Accounts Receivable & Accounts Payable. The controlling account will always have a sub-ledger attached to it.


Sales Adjustments


Sales Returns – Full refund, merchandise goes back to seller. A Contra Revenue account – debit balance. It reduces gross sales.


Sales Allowance – Partial price reduction, customer keeps merchandise. A Contra Revenue account – debit balance. It reduces gross sales.



  • The journal entry to record Sales Returns and Allowances:
    • Debit – Sales Returns and Allowances
      • Credit Accounts Receivable


Credit Memo – Lists the details of a sale’s return or allowance. The customer’s account, in A/R sub-ledger, and the G/L controlling account, A/R, would be credited. It is recorded in the general Journal.


Always remember to calculate the appropriate sales tax that goes along with the sales adjustment. This would be recorded as a debit to sales tax payable to reduce what we must pay the government



                  Do problem 14-2, Recording sales on account, sales adj., page 395, WB pg 344


Sources of cash

Three common types of cash transactions: (sale or payment) (page 396)

  1. Payment from charge customers
  2. Cash Sales
  3. Bank Card Sales


Cash discounts

  • Offered to credit customers
  • Taken at time of receipt of cash or check on payment of amount due


2/10, n30     means: a two percent discount can be taken on what is owed on the invoice if paid within ten days, otherwise the balance is due within 30 days with no discount. (page 398-400)



Go over transactions





Terms Page 406

Questions Page 407













Prob.  14-3  Analyzing a source document   TB pg 404   WB pg 345          

Prob.  14-4  Recording cash receipts           TB pg 404   WB pg 345 

Prob.  14-5  Recording sales & cash receipts TB pg 404   WB pg 346 PC 361        Q377         

Prob.  14-6  Posting sales & cash receipts (L)TB pg 410   WB pg 347         PC 370                

Prob.  14-7  Recording sales & cash rec. (L)  TB pg 411           WB pg 350 PC 371        Q385

Prob.  14-8  Recording sales & cash rec. (L)         TB pg 412  WB pg 352 PC374

Prob.  14-9  Record & post sales & cash (L)         TB pg 413  WB pg 354 PC 375