3 types of basic businesses
- service - sells service
- merchandising business - sells goods that it purchases for resale
- manufacturing - sells goods that it produces
Distribution channel example
manufacturer sells to
wholesaler who sells to
retailer who sells to
consumer
subsidary ledger
a ledger dedicated to accounts of a single type (such as customers or vendors) and showing details to support a general ledger account
retail business
a business that sells directly to individual consumers
periodic inventory system
an inventory system in which the merchandise inventory balance is only updated when a physical inventory is taken
- cost of inventory on hand must be determined by counting merchandise inventory in stock
- used my smaller operations
perpetual inventory system
an inventory system that tracks the inventories on hand at all times
- used by larger businesses that need to know unit cost
- amount of inventory is adjusted for each sale, purchase, or return
merchandise inventory
the stock of goods a merchandising business keeps on hand
new accounts that apply to sales of goods
Sales - Revenue CR
Sales Tax Payable - Liability CR
Sales Discounts - Contra Revenue DR
Sales Returns - Contra Revenue DR
Credit Card Expense - Expense DR
Recording Sales for Cash
Debit Cash
Credit Sales
Recording Sales on Account
Debit AR
Credit Sales
Recording Sales with Tax Payable
Cash:
Debit Cash
Credit Sales Tax Payable
Credit Sales
sales allowance
a reduction in the price originally charged to customers for goods or services
credit memorandum
a note verifying that a customers account is being reduced by the amount of a sales return plus any sales tax
Recording Sale Returns
Debit Sales Returns and Allowances
Debit Sales Tax Payable
Credit Cash
Credit Policies
each business must develop credit policies that acheive maximum sales with minimum losses
- too tight = low level of losses at the expense of increases in sales volume
- too lenient = increased sales volume accompanied by high level of losses
Types of Credit Sales
Open-account credit (allows the sale of services or goods with the understanding that payment will be made at a later date)
business credit cards
bank credit cards
cards issued by credit card companies
Bank Credit Cards are treated as cash sales
debit cash and credit card expense
credit sales and sales tax payable
Nonbank credit card transaction
debit AR
Credit Sales and sales tax payable
when paid:
debit credit card expense and cash
credit AR
trade discount
a reduction from list price
list price
established retail price
credit terms
terms for payment on credit by buyer to seller
Record Sale, Return, Payment
Sale:
Debit AR
Credit Sales
Return:
Debit Sales Returns and Allowances
Credit AR
Payment:
Debit Cash
Debit Sales Discounts (customer paid early net)
Credit AR
Accounts receivable ledger
a subsidiary ledger that contains credit customer accounts
Control Account
an account that links a subsidiary ledger and the general ledger because its balance summarizes the balances of the accounts in the subsidiary ledger
