Name______

Date______

ACCOUNTING FOR SALES

Objectives

/ After completing this chapter, you should be able to:
1. Record entries for sale of merchandise for cash or on credit, including
sales tax.
2. Record entries for amounts received on account from sales of merchandise.
3. Record entries involving sales returns and allowances, including sales tax.
Reading Assignment / Read Chapter 14 in your textbook.
Reading Comprehension Exercises / Complete the exercises below and on the next page of this study guide. Then verify your work with the self-check answers at the back of the guide. If you have difficulty or make many errors, reread the chapter in your textbook before continuing.
Text Applications / Complete any exercises and problems in the textbook that your instructor has assigned. Use a separate sheet of paper for the exercises. All the necessary forms for the problems are in your workbook. Use the self-checks in the workbook to verify your solutions to the problems.

EXERCISE 14-1.

Read each of the following statements carefully. In the Answer column, write T if the statement is true or F if it is false.

Answer

1. / Sales of merchandise are recorded in a revenue account called Sales. / 1. ______
2. / Cash and credit sales of merchandise are recorded in the Sales account. / 2. ______
3. / Merchandise sold on credit is recorded as a debit to Accounts Receivable and a credit to Sales. / 3. ______
4. / The Sales Discount account is debited to record the cash discounts granted on sales of merchandise. / 4. ______
5. / If a business offers cash discounts to its customers, the debit to Sales Discount is recorded at the time that each sale is made. / 5. ______
6. / When a customer returns merchandise or receives an allowance, there is an increase in sales revenue. / 6. ______
7. / Most businesses use an account called Sales Returns and Allowances to record the decrease in sales revenue that results from a return or allowance. / 7. ______
8. / The Sales Returns and Allowances account is credited for the amount of each return or allowance. / 8. ______
9. / When customers return merchandise that was sold on credit, most businesses provide a cash refund. / 9. ______
10. / A credit memorandum is a form that shows the deduction from a customer’s account for a return or allowance. / 10. ______
11. / A liability account called Sales Tax Payable is used to record all the sales tax collected from customers. / 11. ______
12. / If an allowance is granted to a charge customer and the sale involved sales tax, it is necessary to debit Sales Returns and Allowances to decrease the sales revenue, debit Sales Tax Payable to decrease the liability for sales tax, and credit Accounts Receivable to decrease that asset. / 12. ______
13. / The stock of merchandise a business has on hand for resale is called merchandise inventory. / 13. ______

EXERCISE 14-2. Some of the general ledger accounts used at the Colorado Carpet Store are listed below. Describe which accounts would be debited and credited to record each of the following transactions. Write the numbers of the accounts in the proper columns. Also write the amounts that would be involved in each entry.

101 Cash / 231 Sales Tax Payable
112 Accounts Receivable / 401 Sales
113 Merchandise Inventory / 402 Sales Returns and Allowances
121 Office Equipment / 403 Sales Discount

Debit

/

Credit

Transactions /
Account
/
Amount
/
Account
/
Amount
1. / Sold merchandise for $530 in cash. The price of the merchandise was $500 and the sales tax was $30. / 1.
2. / Accepted a return of merchandise that was previously sold for cash. The price of the merchandise was $300, and the sales tax was $18. / 2.
3. / Sold merchandise for $1,378 on credit to Leanne Nicholas. The price of the merchandise was $1,300, and the sales tax was $78. / 3.
4. / Sold merchandise for $900 in cash to Archibald Builders. (There is no sales tax on this transaction.) / 4.
5. / Sold merchandise for $1,200 on credit to Nouveau Decorators. (There is no sales tax on this transaction.) The terms of the sale were 2/10, n/30. / 5.
6. / Issued a credit memorandum for $400 to Nouveau Decorators for damaged merchandise that was returned. / 6.
7. / Received $882 from Nouveau Decorators on account. This amount is in settlement of an invoice for $1,200 less a return of $300 and a discount of $18. / 7.
8. / Received $1,378 from Leanne Nicholas on account. / 8.
9. / Sold a used computer from the office to an equipment dealer for $330 in cash. / 9.

See the self-check answers at the back of the study guide booklet.

27

Chapter 14