Quiz 7: Accounting for Sales and Accounts Receivable, and Cash Receipts
Business
Q 1Q 1
Recording sales, sales returns, and cash receipts for a retail store
Athletic X-Press Sporting Goods began operations March 1, 2013. The firm sells its merchandise for cash; on open account; to customers using bank credit cards, such as MasterCard and VISA; and, to customers using American Express. Merchandise sales are subject to an 8 percent sales tax. The bank credit cards charge a 3 percent fee. American Express charges a 4 percent fee. During March, Athletic X-Press Sporting Goods engaged in the following transactions:
INSTRUCTIONS
1. Open the general ledger account and accounts receivable ledger accounts indicated below.
2. Record the transactions in a general journal. Use 1 as the journal page number.
3. Post the entries from the general journal to the appropriate account in the general ledger and in the accounts receivable ledger.
4. Prepare a schedule of accounts receivable. Compare the balance of the Accounts Receivable control account with the total of the schedule.
GENERAL LEDGER ACCOUNTS
ACCOUNTS RECEIVABLE LEDGER ACCOUNTS
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Recording sale made on account with a sales discount:
A sale made on account would debit the account receivable as there is an increase in the asset with a corresponding credit to the sale account since revenue is credited.
The following entries would be passed: Page 40
Explanations:
March 1:
The amount in the accounts receivable account would be the total of $700 and $56.
The amount of sales tax payable would be
March 3:
The amount in the accounts receivable account would be the total of $300 and $24.
The amount of sales tax payable would be
March 10:
The amount in the cash account would be
March 12:
The amount in the accounts receivable account would be the total of $450 and $36.
The amount of sales tax payable would be
March 15:
The amount in the cash account would be the total of $5,000 and $400.
The amount of sales tax payable would be
March 15:
The amount in the credit card expense account would be
The amount in the cash account would be
The amount of sales tax payable would be
March 25:
The amount in the accounts receivable account would be the total of $300 and $24.
The amount of sales tax payable would be
March 26:
The amount in the accounts receivable account would be the total of $3,000 and $240.
The amount of sales tax payable would be
March 31:
The amount in the cash account would be the total of
The amount of sales tax payable would be
March 31:
The amount in the credit card expense account would be
The amount in the cash account would be
The amount of sales tax payable would be
March 31:
The amount in the credit card expense account would be
The amount in the cash account would be
The amount of sales tax payable would be
The following is the general ledger of accounts receivable:
The following is the subsidiary ledger of accounts receivable:
The following is the general ledger of A:
The following is the subsidiary ledger of accounts receivable:
The following is the general ledger of Mr. M:
The following is the general ledger of Ms. A:
The following is the schedule of the accounts receivable as on March 31, 2013:
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The basic difference between the retail business and the wholesale business is that the • Retail businesses sell the goods directly to the customers • Whereas, wholesale businesses sell goods to retailers who in turn sell goods to the customers.
Q 3Q 3
Normal balances.
Identify the normal balance of the following accounts. Use "dr" for debit or "cr" for credit.
---- Sales
---- Sales Returns and Allowances
---- Sales Discounts
---- Credit Card Expense
---- Sales Tax Payable
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Sales Returns and Allowances: • It's contra revenue account. • Sales returns and allowances are recorded in this account. Sales Discounts: • It's a contra revenue account. • These discounts are allowed to encourage early payments from debtors. Credit card expense: • The credit card expense account is used to record the fees charged by the credit card company to the seller. Normal balances: All the assets, expenses have a debit balance whereas all the liabilities as well as the revenue accounts have a credit balance. Indicate whether following are debit or credit balances: Sales: Credit balance. Sales returns and allowances: Debit balance. Sales discounts: Debit balance. Credit card expense: Debit balance. Sales tax payable: Credit balance.
Q 4Q 4
An excerpt from the Consolidated Statements of Earnings for The Home Depot, Inc., is presented below. Review the financial data and answer the following analysis questions:
Based on the financial statement presented above, what is The Home Depot, Inc.'s fiscal year period?
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Q 5Q 5
Recording sales and cash receipts for a retail store.
Amanda's Appliances began operations March 1, 2013. The firm sells its merchandise for cash and on open account. Sales are subject to a 6 percent sales tax. During March, Amanda's Appliances engaged in the following transactions:
INSTRUCTIONS
1. Open the general ledger accounts indicated below.
2. Record the transactions in a general journal. Use 1 as the journal page number.
3. Post the entries from the general journal to the appropriate general ledger accounts.
GENERAL LEDGER ACCOUNTS
Analyze: What were the total cash receipts during March?
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Q 6Q 6
Recording sales and cash receipts for a retail store.
Venus Office Supplies began operations October 1, 2013. The firm sells its merchandise for cash and on open account. Sales are subject to a 5 percent sales tax. During October, Venus Office Supplies engaged in the following transactions:
INSTRUCTIONS
1. Open the general ledger accounts indicated below.
2. Record the transactions in a general journal. Use 1 as the journal page number.
3. Post the entries from the general journal to the appropriate general ledger accounts.
GENERAL LEDGER ACCOUNTS
Analyze: How much is owed for sales taxes collected at October 31?
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Q 7Q 7
How does the Sales Returns and Allowances account provide management with a measure of operating efficiency? What problems might be indicated by a high level of returns and allowances?
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Q 8Q 8
Retail Store
Carlos Zayas is the owner of The Home Pantry, a housewares store that sells a wide variety of items for the kitchen, bathroom, and home. The Home Pantry offers a company credit card to its customers.
The company has experienced an increase in sales since the credit card was introduced. Carlos is considering replacing his manual system of recording sales with electronic point-of-sale cash registers that are linked to a computer.
Cash sales are now rung up by the salesclerks on a cash register that generates a tape listing total cash sales at the end of the day. For credit sales, salesclerks prepare handwritten sales slips that are forwarded to the accountant for manual entry into the general journal and accounts receivable ledger.
The electronic register system Carlos is considering would use an optical scanner to read coded labels attached to the merchandise. As the merchandise is passed over the scanner, the code is sent to the computer. The computer is programmed to read the code and identify the item being sold, record the amount of the sale, maintain a record of total sales, update the inventory record, and keep a record of cash received.
If the sale is a credit transaction, the customer's company credit card number is entered into the register. The computer updates the customer's account in the accounts receivable ledger stored in computer memory.
If this system is used, many of the accounting functions are done automatically as sales are entered into the register. At the end of the day, the computer prints a complete listing of sales made, along with up-to-date balances for the general ledger and the accounts receivable ledger accounts related to sales transactions.
Listed below are four situations that Carlos is eager to eliminate. Would use of an electronic point-of-sale system as described above reduce or prevent these problems? Why or why not?
1. The accountant did not post a sale to the customer's subsidiary ledger account.
2. The salesclerk did not charge a customer for an item.
3. The customer purchased merchandise using a stolen credit card.
4. The salesclerk was not aware that the item purchased was on sale and did not give the customer the sale price.
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Q 10Q 10
Recording sales made for cash and on account.
Hartoto Corporation operates in a state with no sales tax. Record the following transactions in a general journal:
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Q 11Q 11
An excerpt from the Consolidated Statements of Earnings for The Home Depot, Inc., is presented below. Review the financial data and answer the following analysis questions:
The Home Depot, Inc.'s statement reports one figure for net sales. Name one account whose balance may have been deducted from the Sales account balance to determine a net sales amount.
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Q 12Q 12
Recording sales, sales returns, and cash receipts for a retail store.
Eddie's Electronics began operations September 1, 2013. The firm sells its merchandise for cash and on open account. Sales are subject to a 7 percent sales tax. During September, Eddie's Electronics engaged in the following transactions:
INSTRUCTIONS
Record the transactions in a general journal. Use 1 as the page number.
Analyze: What portion of the sales during September were for entertainment items? (Hint: Do not forget to reduce sales by any sales returns or allowances.)
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Q 13Q 13
Recording sales, sales returns, and cash receipts for a retail store.
The Appliance Discounter began operations November 1, 2013. The firm sells its merchandise for cash and on open account. Sales are subject to a 6 percent sales tax. During November, The Appliance Discounter engaged in the following transactions:
INSTRUCTIONS
Record the transactions in a general journal. Use 1 as the journal page number.
Analyze: What is the total amount due from Bob Huffington for the November 29 sale?
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Q 14Q 14
Suppose you are the accountant for a small chain of clothing stores. Up to now, the firm has offered open-account credit to qualified customers but has not allowed them to use bank credit cards. The president of the chain has asked your advice about changing the firm's credit policy. What advantages might there be in eliminating the open-account credit and accepting bank credit cards instead? Do you see any disadvantages?
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Q 16Q 16
Recording sales made for cash and on account, with 8 percent sales tax.
The following transactions took place at Hanson's Wildlife Resort during May. Hanson's Wildlife Resort must charge 8 percent sales tax on all sales:
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Q 17Q 17
An excerpt from the Consolidated Statements of Earnings for The Home Depot, Inc., is presented below. Review the financial data and answer the following analysis questions:
The data presented demonstrate a steady decrease in net sales over the three-year period. By what percentage have net sales of 2010 decreased from sales of 2008?
Analyze Online: Find the most recent consolidated statements of income on The Home Depot, Inc., Web site (www.homedepot.com). Click on Investor Relations then Financial Reports then Annual Reports, then select the link for the most recent annual report.
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Q 18Q 18
Posting transactions to the general ledger and accounts receivable ledger.
INSTRUCTIONS
1. Open the general ledger accounts and accounts receivable ledger accounts indicated below.
2. Post the entries from the general journal in Problem 7.2A to the appropriate accounts in the general ledger and in the accounts receivable ledger.
3. Prepare a schedule of accounts receivable. Compare the balance of the Accounts Receivable control account with the total of the schedule.
GENERAL LEDGER ACCOUNTS
ACCOUNTS RECEIVABLE LEDGER ACCOUNTS
Analyze: What is the amount of sales tax owed at September 30, 2013?
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Q 19Q 19
During the past year, Cravens Company has had a substantial increase in its losses from uncollectible accounts. Assume that you are the newly hired controller of this firm and that you have been asked to find the reason for the increase. What policies and procedures would you investigate?
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Q 20Q 20
Why is a sales return or allowance usually recorded in a special Sales Returns and Allowances account rather than being debited to the Sales account?
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Q 21Q 21
Recording sales made for cash and on account, with 8 percent sales tax, and sales returns.
Record the following transactions of Fashion Designs in a general journal:
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Q 22Q 22
An excerpt from the Consolidated Statements of Earnings for The Home Depot, Inc., is presented below. Review the financial data and answer the following analysis questions:
What dollar amount is reported for net sales for the most recent year?
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Q 23Q 23
Recording sales, sales returns, cash discounts, and cash receipts for a wholesale business.
Best Sounds is a wholesale business that sells musical instruments. Transactions involving sales and cash receipts for the firm during April 2013 follow. The firm sells its merchandise for cash and on open account. During April, Best Sounds engaged in the following transactions:
INSTRUCTIONS
Record the transactions in a general journal. Use 11 as the page number.
Analyze: What was the amount of the cash discount taken by Hawk Music Center on April 29?
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Q 24Q 24
Recording sales, sales returns, cash discounts, and cash receipts for a wholesale business.
The Urban Florist is a wholesale shop that sells flowers, plants, and plant supplies. Transactions involving sales and cash receipts for the firm during May 2013 follow. The firm sells its merchandise for cash and on open account. During May, The Urban Florist engaged in the following transactions:
INSTRUCTIONS
Record the transactions in a general journal. Use 12 as the page number.
Analyze: What was the amount of the cash discount taken by Annie's Flowers on May 10?
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Q 25Q 25
Suppose a manager in your company has suggested that the firm not hire an accountant to advise it on tax matters and to file tax returns. He states that tax matters are merely procedural in nature and that anyone who can read the tax form instructions can do the necessary work. Comment on this idea.
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Q 27Q 27
Recording sales made with bank credit cards and American Express, with 8 percent sales tax.
Record the following transactions of Ann's Fashion Boutique in a general journal:
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Q 28Q 28
An excerpt from the Consolidated Statements of Earnings for The Home Depot, Inc., is presented below. Review the financial data and answer the following analysis questions:
What is the trend in net sales over the last three years?
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Q 29Q 29
Posting transactions to the general ledger and accounts receivable ledger.
INSTRUCTIONS
1. Open the general ledger accounts and accounts receivable ledger accounts shown at the top of the next page. Enter the balances as of April 1, 2013.
2. Post the entries from the general journal in Problem 7.4A to the appropriate accounts in the general ledger and in the accounts receivable ledger.
3. Prepare a schedule of accounts receivable. Compare the balance of the Accounts Receivable control account with the total of the schedule.
GENERAL LEDGER ACCOUNTS
ACCOUNTS RECEIVABLE LEDGER ACCOUNTS
Analyze: What were the total sales on account in April, prior to any returns, allowances, or discounts?
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Q 30Q 30
Posting transactions to the general ledger and accounts receivable ledger.
INSTRUCTIONS
1. Open the general ledger accounts and accounts receivable ledger accounts indicated below. Enter the balances as of May 1, 2013.
2. Post the entries from the general journal in Problem 7.4B to the appropriate accounts in the general ledger and in the accounts receivable ledger.
3. Prepare a schedule of accounts receivable. Compare the balance of the Accounts Receivable control account with the total of the schedule.
GENERAL LEDGER ACCOUNTS
ACCOUNTS RECEIVABLE LEDGER ACCOUNTS
Analyze: What were total sales on account in May, prior to any returns, allowances, or discounts?
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Q 31Q 31
Why is it usually worthwhile for a business to sell on credit even though it will have some losses from uncollectible accounts?
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Q 33Q 33
Computing a trade discount.
Amara Company made sales using the following list prices and trade discounts. What amount should be recorded for each sale?
1. List price of $540 and trade discount of 30 percent.
2. List price of $640 and trade discount of 20 percent.
3. List price of $220 and trade discount of 40 percent.
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Q 34Q 34
An excerpt from the Consolidated Statements of Earnings for The Home Depot, Inc., is presented below. Review the financial data and answer the following analysis questions:
What are some possible reasons for this trend?
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Q 35Q 35
Recording sales made for cash, open account, and with credit cards.
Unmatched Elegance Gift Shop sells cards, supplies, and various holiday greeting cards. Sales to retail customers are subject to an 8 percent sales tax. The firm sells its merchandise for cash; to customers using bank credit cards, such as MasterCard and VISA; and to customers using American Express. The bank credit cards charge a 2 percent fee. American Express charges a 3 percent fee. Unmatched Elegance Gift Shop also grants trade discounts to certain wholesale customers who place large orders. These orders are not subject to sales tax. During February 2013, Unmatched Elegance Gift Shop engaged in the following transactions:
INSTRUCTIONS
1. Open the general ledger accounts indicated below and enter the balances as of February 1, 2013.
2. Record the transactions in a general journal. Use 10 as the journal page number.
3. Post the entries from the general journal to the appropriate accounts in the general ledger.
GENERAL LEDGER ACCOUNTS
Analyze: What was the total credit card expense incurred in February?
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Q 36Q 36
Recording sales made for cash, open account, and with credit cards.
The Victorian Elegance China Shop sells china, stemware, and other gift items. Sales to retail customers are subject to an 8 percent sales tax. The firm sells its merchandise for cash; to customers using bank credit cards, such as MasterCard and VISA; and, to customers using American Express. The bank credit cards charge a 3 percent fee. American Express charges a 4 percent fee. The Victorian Elegance China Shop also grants trade discounts to certain wholesale customers who place large orders. These orders are not subject to sales tax. During June 2013, The Victorian Elegance China Shop engaged in the following transactions:
INSTRUCTIONS
1. Open the general ledger accounts indicated below and enter the balances as of June 1, 2013.
2. Record the transactions in a general journal. Use 15 as the journal page number.
3. Post the entries from the general journal to the appropriate accounts in the general ledger.
GENERAL LEDGER ACCOUNTS
Analyze: What was the total credit card expense incurred in June?
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Q 38Q 38
The sales tax on a credit sale is not collected from the customer immediately. When is this tax usually entered in a firm's accounting records? What account is used to record this tax?
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Q 39Q 39
Computing a series of trade discounts.
Norville Distributors, a wholesale firm, made sales using the following list prices and trade discounts. What amount should be recorded for each sale?
1. List price of $3,500 and trade discounts of 25 percent and 15 percent.
2. List price of $4,200 and trade discounts of 25 percent and 15 percent.
3. List price of $2,550 and trade discounts of 20 percent and 10 percent.
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Q 40Q 40
Why should management insist that all sales on credit and other transactions affecting the firm's accounts receivable be journalized and posted promptly?
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Q 41Q 41
In a particular state, the sales tax rate is 5 percent of sales. The retailer is allowed to record both the selling price and the tax in the same account. Explain how to compute the sales tax due when this method is used.
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Q 42Q 42
Recording a sale made on account, with a sales discount.
On April 1, Moloney Meat Distributors sold merchandise on account to Fronke's Franks for $2,000 on Invoice 1001, terms 2/10, n/30. Payment was received in full from Fronke's Franks, less discount, on April 10.
Required: Record the transactions on April 1 and April 10. Use 14 as the journal page number.
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Q 43Q 43
How can efficient accounting records help management maintain sound credit and collection policies?
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Q 44Q 44
What two methods are commonly used to record sales involving credit cards issued by credit card companies?
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Q 45Q 45
Posting to the general ledger and the accounts receivable ledger.
Post the entries in the general journal below to the accounts receivable account in the general ledger and to the appropriate accounts in the accounts receivable ledger for Calderone Company.
Assume the following account balances at January 1, 2013:
Use 111 as the account number for Accounts Receivable in the general ledger.
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Q 46Q 46
What procedure does a business use to collect amounts owed to it for sales on credit cards issued by credit card companies?
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Q 47Q 47
Preparing a schedule of accounts receivable.
1. Use the final balances of the customer accounts after completing Exercise 7.9 to prepare a schedule of accounts receivable for Calderone Company at January 31, 2013.
2. Should the total of your accounts receivable schedule agree with the balance of the accounts receivable account in the general ledger at January 31, 2013?
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Q 48Q 48
When a firm makes a sale involving a credit card issued by a credit card company, does the firm have an account receivable with the cardholder or with the credit card company?
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Q 49Q 49
What type of account is used to record the fees charged by the credit card company to the seller?
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