Special Journals and Subsidiary Ledgers: Sales and Cash Receipts Journals – Chapter 6 Study Notes

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Special Journals and Subsidiary Ledgers: Sales and Cash Receipts Journals

Introduction

This chapter focuses on the use of special journals and subsidiary ledgers in merchandising operations, emphasizing the recording and management of sales and cash receipts transactions. These tools are essential for efficient and accurate financial accounting in businesses that sell goods.

Retailers and Merchandising Operations

Retailers

Retailers purchase products from manufacturers or wholesalers and resell them to customers.
Revenue for retailers is generated from sales of products.
Accurate tracking of sales, returns, and receipts is crucial for financial reporting and management.

Merchandising Operations

Merchandising companies differ from service companies in that they sell physical goods.
Key financial flow for merchandising companies: Net Sales Revenue − Cost of Goods Sold = Gross Profit − Operating Expenses = Profit (Net Income)

Special Journals

Types of Special Journals

Sales Journal (SJ): Records sales of merchandise on account.
Cash Receipts Journal (CRJ): Records all cash received, including cash sales and collections from customers.
Purchases Journal (PJ): Records purchases of merchandise on account.
Cash Payments Journal (CPJ): Records all cash paid, including payments to suppliers and other expenses.
General Journal: Used for transactions not covered by special journals, such as adjusting and closing entries.

Purpose and Design

Special journals streamline the recording process for frequent, repetitive transactions.
They improve efficiency and reduce errors in posting to the general ledger.

Inventory Systems

Periodic vs. Perpetual Inventory Systems

Periodic System: Inventory records are updated at the end of an accounting period.
Perpetual System: Inventory records are updated continuously with each transaction; most common due to POS (Point of Sale) system integration.

Key Accounts in Perpetual Systems

Inventory (Asset): Represents goods held for sale.
Cost of Goods Sold (Expense): Represents the cost of inventory sold during the period.

Example: Inventory Purchased

Date	Account Titles and Description	Dr.	Cr.
June 1	Inventory	250
	Accounts Payable		250

To record the purchase of inventory (10 keyboards at $25 each).

Example: Inventory Sold

Date	Account Titles and Description	Dr.	Cr.
June 4	Cash	150
	Sales Revenue		150
June 4	Cost of Goods Sold	75
	Inventory		75

To record the sale and cost of 3 keyboards at $50 each.

Designing Sales and Cash Receipts Journals

Allowing customers to purchase on credit introduces risk.
Sales Discounts: Offered to encourage early payment.
Trade Discounts: Deducted from list price for bulk or preferred customers.
Tracking and collecting accounts receivable is essential for cash flow management.

Sales Returns and Allowances

Definition and Accounting

Sales Returns and Allowances: Contra-revenue account used when customers return goods or receive price reductions.
Reported on the income statement, reducing total sales.

Example: Sales Return

Date	Account Titles and Description	Dr.	Cr.
June 4	Sales Returns and Allowances	50
	Cash		50
June 4	Inventory	25
	Cost of Goods Sold		25

To record the return of one keyboard for a cash refund.

Sales Journal and Posting

Sales Journal

Records only sales of merchandise on account.
At month-end, totals are posted to general ledger accounts.

Example: Sales Journal Entry

Date	Account Debited	Invoice #	Dr. Acct Rec	Cr. Sales	Dr. Cost of Goods Sold	Cr. Inventory
Apr. 18	Kevin Stone Co.	1	600	600	450	450
Apr. 19	Bill Valley Co.	2	900	900	675	675
	Totals		1,500	1,500	1,125	1,125

Subsidiary Ledgers

Definition and Use

Subsidiary Ledger: Contains accounts of a single type, such as accounts receivable for each customer.
Often used for credit customers and arranged alphabetically.

Accounts Receivable Subsidiary Ledger

Provides detailed listing of amounts owed by each customer.
Balances in subsidiary ledger must match the control account in the general ledger at month-end.

Example: Subsidiary Ledger

Controlling Account	Subsidiary Accounts
Accounts Receivable 1,240 3,500 800 Bal. 4,300	Q. Adams: 3,500 B. Merideth: 800 J. Walther: 1,240

Sales Discounts and Trade Discounts

Sales Discounts

Sales Discounts: Contra-revenue account for cash discounts given to customers who pay early.
Common terms: 2/10, n/30 (2% discount if paid within 10 days, net due in 30 days).
Reported on the income statement.

Calculating Sales Discounts

Discount Period: Time when a discount is granted.
Credit Period: Time allowed to pay the bill.
Formula:
Example: discount if paid within 10 days.

Trade Discounts

Deducted from the list price for items purchased for resale.
Only the net selling price (after discount) is recorded in the books.

Item	List Price	Trade Discount	Selling Price
Bicycles	$100.00	40%	$60.00

Gross Sales and Net Sales

Gross Sales

Total of cash and charge sales.
Example: If cash sales are $1,000 and charge sales are $2,000, credit Sales account $3,000.

Cash	Accounts Receivable	Sales (Gross)
Dr. 1,000	Dr. 2,000	Cr. 3,000

Net Sales

Net Sales is calculated as:

Credit Memorandum

Definition and Use

Document sent by the seller to a customer who has returned merchandise.
Indicates a reduction in the amount owed by the customer.
Accounts Receivable is credited when a credit memo is issued.

Example: Credit Memorandum

Credit Memorandum No. 1
Date: April 12, 20XX Credit to: Bevans Company Merchandise returned: 60 model 8B men's dress gloves—$600

Recording Sales Returns & Allowances

Date	Account Titles and Description	Dr.	Cr.
Apr 12	Sales Returns & Allowances	600
	Accounts Receivable, Bevans Co.		600
	Inventory	450
	Cost of Goods Sold		450

Cash Receipts Journal

Definition and Use

Used to record all cash received by the business.
Includes cash sales, collections from customers, and other cash receipts.

Schedule of Accounts Receivable

Purpose

Lists customers with outstanding balances as of a specific date.
Verifies accuracy of postings and assists in collections, especially for aged accounts.
Schedule must match the Accounts Receivable control account in the general ledger.

Additional Practice

Practice opportunities include self-review videos, tutorials, study modules, flashcards, and practice tests.
End-of-chapter exercises and problems are recommended for mastery.

Summary

Special journals and subsidiary ledgers are essential for efficient and accurate recording of sales and cash receipts in merchandising operations.
Proper use of these tools ensures reliable financial reporting and effective management of receivables and inventory.