ACC 250 Lecture 6: Accounting Lecture Notes 6

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emeraldleopard234

10 Jun 2018

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Merchandise Returns and Allowances

When a sale is made on account, the seller issues a sales invoice and makes one appropriate

accounting entry. No further action is necessary for most sales transactions, except to ensure

that the customer pays the account.

In the Books of the Vendor

Occasionally, however, a correction or a cancellation of a sales invoice is necessary.

Credit invoice

The standard procedure in this situation is for the seller to issue a credit invoice. A credit

invoice, or a credit note, is a minus invoice issued by the vendor to reverse a charge that was

previously made on a regular sales invoice. Credit invoices are used to adjust, correct, or

cancel a charge to a customer’s account for any of the reasons given below:

-The goods prove to be defective and are returned

-The goods prove to be less than satisfactory but are kept by the customer. In this case, the

customer will be given an allowance off the invoice price

-An error is made on the sale invoice

Cash Refunds

The cash sale is a common business transaction. However, dissatisfaction can occur with cash

sales as well as with charge sales. A customer who has paid cash for merchandise that has to

be returned will usually receive a refund. A cash refund is the return of money to the buyer

from the seller when merchandise is returned.

In principle, the accounting for refunds is similar to that for credit invoices. However, when a

refund is given:

-No credit invoices are issued

-Instead, cash is handed over, or a cheque is issues. The accounting entry to record the

transaction affects the bank account.

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Document Summary

When a sale is made on account, the seller issues a sales invoice and makes one appropriate accounting entry. No further action is necessary for most sales transactions, except to ensure that the customer pays the account. Occasionally, however, a correction or a cancellation of a sales invoice is necessary. The standard procedure in this situation is for the seller to issue a credit invoice. A credit invoice, or a credit note, is a minus invoice issued by the vendor to reverse a charge that was previously made on a regular sales invoice. Credit invoices are used to adjust, correct, or cancel a charge to a customer s account for any of the reasons given below: The goods prove to be defective and are returned. The goods prove to be less than satisfactory but are kept by the customer. In this case, the customer will be given an allowance off the invoice price.

Related Questions

TRANSACTIONS FOR THE MONTH OF JANUARYâNote that wewill ignore Sales Tax for this project. Normally, one would have toprovide an explanation for each general journal entry. However,since we are recording all entries in the general journal,explanations will not be necessary.

Jan 2 Issued abond, face value $100,000, to Daniel Scheriâs Investment Companyfor $91,000 cash. Terms of the bond is 5 years and the statedinterest rate is 9.6%. Interest and amortization will be recordedas an adjusting entry the end of the month.

2 Issued6,000 shares of common stock for $50,000. Remember that commonstock is always recorded at par value.)

3 Sold aYamaha Waverunner for $8,000 on account to Buena by the Shore,).Issued Invoice No. 719. (Note that we are using FIFO forinventory)

(Note that when making a saleusing a perpetual inventory system, you always need two entries,one recognizing the sale, and one reducing inventory.)

Cash or/and AccountsReceivable XX

Sales XX

Cost of GoodsSold XX

MerchandiseInventory XX

3 Purchased a SnyderCraft for $16,800 on account from Szumowskiâsâs Boats, Invoice No.630, terms 3/10, n/60. Note that since we are using a perpetualinventory system, all purchases and sales need an entry in theaccount MerchandiseInventory.

4 Purchasedvarious boat merchandise of $3,000 from Szumowskiâsâs Boats onAccount, Invoice No. 631, terms 3/10, n/60.

4 Issued Check No. 292 toSzumowskiâsâs Boats in full settlement of our December accountbalance --Invoice No. 580, terms n/30.

Issued credit memorandum No. 75 to Parth Patelâs Boats for$1,000 for miscellaneous merchandise previously purchased. Our costand value is 500. (Reverse the entry listed above on the2^nd but use Sales Returns and Allowance instead of theaccount Sales and the numbers given in this entry.)

4 IssuedCheck No. 293 to Copier Repair Co. for copier repairs, $500.

5 Receivedpayment in full from Parth Patelâs Boats on sale made in December.(Do not forget the credit memorandum on the 4th.)

5 Sold aSeahawk to Evan Hughes Boats, for $36,000. We received $10,000 as adown payment. Issued Invoice No. 720.

Returned defective merchandise from the December 3^rdpurchase to Szumowskiâsâs Boats and received a $500 creditmemorandum. (Credit Merchandise InventoryâBoatSupplies)

6 Sold all the old warehouse storage equipment for $22,000. Thewarehouse equipment has a five-year life and a salvage value of$4,000. Assume the company uses the straight-line method todepreciate Warehouse Equipment. (Step 1âBring the depreciationup to date by depreciating the warehouse for one month. Step2âRemove the asset and accumulated depreciation and debit cash.Step 3âPlug to a realized gain or loss account-- 701.)

7 Sold boatmerchandise on account to Paige Connery Best Buys for $900, ourcost $450. Invoice no. 720.

8 IssuedCheck No. 294 to Amanda Muetterâs Contractors to purchase aBuilding for $150,000. Straight-line method will be used over 20years without any salvage value. At this time, you only will needto make the entry for the purchase of the building. (Note, that amonthâs depreciation will have to be recorded as an adjusting entryat the end of the period.)

10 IssuedCheck No. 295 to the Internal Revenue Service in payment of FICAtaxes accrued as of December 30 (FICA Taxes Payableâ look atbeginning trial balance for amount.)

10 IssuedCheck No. 296 to the Internal Revenue Service in payment of federalincome taxes withheld as of December 30. (Employeesâ FederalIncome Taxes Payableâlook at beginning trial balance foramount.)

Issued Check No. 297 to Kyj and Cheatem Investment Company for$3,000 of

equity marketable securities to hold excess cash. (Thisshould be debited

to Investments--Available for Sale Securities âAccount number109.)

11 IssuedCheck No. 298 to Mathew Hamiltonâs Distributors in full settlementof the December 30 purchase, Invoice No. 1002, terms n/20.

11 IssuedCheck No. 299 to Szumowskiâsâs Boats in full settlement of ouraccount for the two purchases early this month. (Recall the creditmemorandum on the 5th.) (Note that when paying suppliers withina discount period, one must credit Merchandise Inventory.)

15 Check No.300 voided. (No entry needed.)

15 Sold boatsupplies on account to Parth Patelâs Boats , for $1,800 (Cost$900). Issued Invoice No. 721.

olivebat54

Which of the following statements is false?

Cash receipts events data are comprised of one or more invoicerecords.

None of these answers are correct

The typical B/AR/CR system assists in preparing internal andexternal reports.

Cash receipts can be accelerated by using some form of EFT.

The two types of adjustments that commonly result from aperiodic review of the aging details of customer account balancesare a recurring entry for estimated bad debts and a bad debtwrite-off.

Which of the following statements is true?

The billing system in which the invoice is prepared after goodshave been shipped and the sales order notification has been matchedto shipping's billing notification is called a post-billingsystem.

The billing system in which the invoice is prepared after goodshave been shipped and the sales order notification has been matchedto shipping's billing notification is called a pre-billingsystem.

The billing system in which the invoice is prepared after goodshave been shipped and the sales order notification has been matchedto shipping's billing notification is called a open-itemsystem.

The billing system in which the invoice is prepared after goodshave been shipped and the sales order notification has been matchedto shipping's billing notification is called a balance-forwardsystem.

None of these answers are correct.

Which of the following is not an operations process goal for theBilling/Accounts Receivable/Cash Receipts process?

Ensure security of resources

Ensure efficient employment of resources

Ensure AR master data update accuracy

None of these answers are correct

Ensure effectiveness of operations

Which of the following statements is false?

Pre-formatted screens in the OE/S process are a control planthat involves the detailed comparison of the individual elementsappearing on two source documents.

An invoice is a business document---either paper or electronictransmission---used to notify the customer of an obligation to paythe seller for merchandise which was ordered and shipped.

Depending on how the OE/S process is designed, the sales ordermaster data may be updated at least twiceÂ¾once when a new salesorder is created and later to reflect the shipment of thatorder.

None of these answers are correct.

Funds on deposit and available for use are known as goodfunds.

Which of the following statement is false?

The AR master file address is a postal address, maintained bythe firm's bank, which is used solely for the purpose of collectingchecks.

None of these answers are correct

The customer master data is a data store that contains dataidentifying the particular characteristics of each customer.

EFT includes wire transfers, credit and debit card processing,as well as payments made via the ACH Network.

A tickler file is one that is reviewed on a current and regularbasis for the purpose of taking action to clear the items from thatfile.

jadeworm65

Solve the following QS and Exercises from your textbook in chapter 8.

QS 8-1

Internal control objectives

An internal control system consists of all policies and procedures used to protect assets, ensure reliable accounting, promote efficient operations, and urge adherence to company policies. Evaluate each of the following statements and indicate which are true and which are false regarding the objectives of an internal control system.

____	1.	Separation of recordkeeping for assets from the custody over assets is intended to reduce theft and fraud.
____	2.	The primary objective of internal control procedures is to safeguard the business against theft from government agencies.
____	3.	The main objective of internal control procedures is best accomplished by designing an operational system with managerial policies that protect the assets from waste, fraud, and theft.
____	4.	Separating the responsibility for a transaction between two or more individuals or departments will not help prevent someone from creating a fictitious invoice and paying the money to herself or himself.

QS 8-2

Cash and equivalents

Choose from the following list of terms/phrases to best complete the following statements.

a.	Cash
b.	Cash equivalents
c.	Outstanding check
d.	Liquidity
e.	Bank reconciliation
f.	Current assets

____	1.	The category includes currency and coins along with amounts on deposit in bank accounts, checking accounts, and savings accounts.
____	2.	The term __________ refers to a companyâs ability to pay for its near-term obligations
____	3.	The __________ category includes short-term highly liquid investment assets that are readily convertible to a known cash amount and sufficiently close to their due dates so that their market value is not sensitive to interest rate changes.

QS 8-3

Internal control for cash

A good system of internal control for cash provides adequate procedures for protecting both cash receipts and cash disbursements. Identify each of the following statements as either true or false regarding this protection.

____	a.	A basic guideline for safeguarding cash is that all cash receipts be deposited weekly or monthly.
____	b.	A voucher system of control is a control system exclusively for cash receipts.
____	c.	A basic guideline for safeguarding cash is to separate the duties of those who have custody of cash from those who keep cash records.
____	d.	A petty cash system is not a control procedure for safeguarding cash.

QS 8-4

Petty cash accounting

The petty cash fund of the Brooks Agency is established at $150. At the end of the current period, the fund contained $28 and had the following receipts: film rentals, $24; refreshments for meetings, $46 (both expenditures to be classified as Entertainment Expense); postage, $30; and printing, $22. Prepare journal entries to record (a) establishment of the fund and (b) reimbursement of the fund at the end of the current period.

Identify the two events from the following that cause a Petty Cash account to be credited in a journal entry.

____	a.	Fund amount is being reduced
____	b.	Fund amount is being increased
____	c.	Fund is being eliminated
____	d.	Fund is being established

Exercise 8-13^A

Documents in a voucher system

Match each document in a voucher system in column one with its description in column two.

Document

1.	Purchase requisition
2.	Purchase order
3.	Invoice
4.	Receiving report
5.	Invoice approval
6.	Voucher

Description

____	A.	An itemized statement of goods prepared by the vendor listing the customerâs name, items sold, sales prices, and terms of sale.
____	B.	An internal file used to store documents and information to control cash disbursements and to ensure that a transaction is properly authorized and recorded.
____	B.	An internal file used to store documents and information to control cash disbursements and to ensure that a transaction is properly authorized and recorded.
____	C.	A document used to place an order with a vendor that authorizes the vendor to ship ordered merchandise at the stated price and terms.
____	D.	A checklist of steps necessary for the approval of an invoice for recording and payment; also known as a check authorization.
____	E.	A document used by department managers to inform the purchasing department to place an order with a vendor.
____	F.	A document used to notify the appropriate persons that ordered goods have arrived, including a description of the quantities and condition of goods.

Exercise 8-14^B

Record invoices at gross or net amounts

Piere Imports uses the perpetual system in accounting for merchandise inventory and had the following transactions during the month of October. Prepare entries to record these transactions assuming that Piere Imports records invoices (a) at gross amounts and (b) at net amounts.

Oct.	2	Purchased merchandise at a $3,000 price, invoice dated October 2, terms 2/10, n/30.
	10	Received a $500 credit memorandum (at full invoice price) for the return of merchandise that it purchased on October 2.
	17	Purchased merchandise at a $5,400 price, invoice dated October 17, terms 2/10, n/30.
	27	Paid for the merchandise purchased on October 17, less the discount.
		31Paid for the merchandise purchased on October 2. Payment was delayed because the invoice was mistakenly filed for payment today. This error caused the discount to be lost. Please provide all the answer thank you

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ACC 250 Lecture 6: Accounting Lecture Notes 6

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