Chapter 9
Sales and Cash Receipts in a Perpetual Inventory System
Chapter Overview
Chapter 9 discusses merchandising companies and their operations. When recording sales, a business
credits sales for the total amount and debits either cash or accounts receivable depending on the sale.
Some businesses offer incentives in order to collect the account receivable quickly. A common discount
term is 2/10, n/30 which indicates that a customer may take a 2% discount if they pay within 10 days. If
the business doesn’t pay within 10 days, it must pay the full amount within 30 days. When making the
sale, the business records the sale in the sales journal and posts to the general ledger and the accounts
receivable subsidiary ledger. The subsidiary ledger records each individual customer’s accounts
receivable, and a schedule of each customer balance, totaled, equals the amount in the controlling account
– the accounts receivable balance in the general ledger. The business uses this information to issue a
monthly statement to each customer informing the customer of the amount they owe.
In addition to recording sales and sales discounts, businesses also need to collect sales tax. The sales tax
collected is paid by the customer and passed from the business to the taxing agency so the tax collected is
a liability.
Learning Objectives
After studying Chapter 9, your students should gain proficiency in the following:
2. Record to Subsidiary Ledgers and Post to General Ledger Sales Transactions and Returns.
3. Record and Post Cash Receipt Transactions and Prepare a Schedule of Accounts Receivable.
Chapter 9 Assignment Grid
Estimated Level
Learning Time in of
Assignment Topic(s) Objective(s) Minutes Difficulty
10 Accounts Receivable & Subsidiary Ledger 2 5 Easy
11 Accounts Receivable & Subsidiary Ledger 2 5 Easy
12 Posting Reference 2 5 Easy
13 Invoice 2 5 Easy
14 Sales Tax 1 5 Easy
7 Journalize Transactions 1, 2 15 Medium
8 Schedule of Accounts Receivable 3 15 Easy
Exercises (Set A)
9A-1 Perpetual Inventory Transactions 1 15 Easy
9A-2 Record & Post 1, 2 10 Easy
9B-6 Sales Tax 1 10 Easy
Problems (Set A)
9A-1 Entries, Postings, Schedule of A/R 1, 2 40 Medium
9A-2 Entries, Postings, Schedule of A/R 1, 2 50 Medium
9A-3 Entries, Postings, Schedule of A/R 1, 2 70 Hard
Problems (Set B)
9B-1 Entries, Postings, Schedule of A/R 1, 2 40 Medium
9B-2 Entries, Postings, Schedule of A/R 1, 2 50 Medium
Learning Time in Level of
Assignment Topic(s) Objective(s) Minutes Difficulty
Financial Report Problem
Reading Amazon’s Annual Report 1 15 Easy
Keeping It Real
Suarez Computer Center 1, 2, 3 75 Hard
Learning Unit 9-1: Journalizing Transactions for a Perpetual
Inventory System
Summary: A perpetual inventory system is an inventory system that continually monitors its levels of
inventory. The system employs recording units on hand at the beginning of each accounting period, units
purchased and sold, and the current balance after each sale or purchase. The Gross Sales are the total
amount earned from the cash or credit sale of merchandise to customers. A sales invoice is the bill sent
to customers reflecting a credit sale. The sales returns and allowances accounts is a contra-revenue
The Sales Tax Payable is an account in the general ledger that accumulates the amount of sales tax owed,
and the account has a normal credit balance. A Controlling Account-Accounts Receivable is the
accounts receivable account in the general ledger, after postings are complete, showing or which shows a
firm the total amount of money owed to it by customers. This figure is broken down in the accounts
Key Concepts: Perpetual inventory system, merchandise (inventory), cost of goods sold, discount
period, credit period, sales discount account, sales tax payable account.
Lecture Outline:
1. Purchase transactions:
a. The entry to purchase inventory on open account:
Dr. Merchandise Inventory XX
Cr. Accounts Payable XX
b. The entry to purchase equipment on open account:
Dr. Shelving equipment XX
Cr. Accounts Payable XX
c. The entry to record purchase discounts on inventory:
Dr. Merchandise Inventory XX
Cr. Cash XX
2. Sales transactions:
a. The entries to record sales on credit and cost of goods sold:
Dr. Cash XX
Cr. Sales XX
b. Sales Returns and Allowances: A contra-revenue account that record returns and
defective merchandise.
i. The entry to record a return or allowance for merchandise sold on credit:
Dr. Sales Returns and Allowances XX
Cr. Accounts Receivable XX
Dr. Merchandise Inventory XX
Cr. Cost of Goods Sold XX
c. Sales Discounts are price reductions granted to customers for payments made within a
specific period of time.
i. The term of the sale, 2/10, n/30, indicates:
2. Or the full (net) amount must be paid within 30 days (the credit period).
ii. The term n/10, EOM indicates:
2. And the full (net) amount must be paid within 10 days after the End of
the Month (the credit period).
iii. The journal entry for cash sales with a discount:
Dr. Cash (sales less discount taken) XX
Dr. Sales Discount XX
Cr. Sales Revenue XX
d. Sales Tax Payable is a liability account to record the sales tax collected that needs to be
paid to the state, city or locality.
i. State and City sales tax vary from state to state and city to city. In some locations
Cr. Sales Tax Payable (tax rate X sales $ amount)
XX
Cr. Sales XX
Teaching Tips/Strategy: Students are comfortable with a merchandising industry. Relate the
terminology with a known merchandising business (or store) such as Walmart that your students have
visited. For the lecture, use discussion questions #1-#9. This set of questions will allow the class to start
Use the “Ten-Minute Quiz” questions #1, #2, #3, #5, and #6 to reinforce these concepts.
Learning Unit 9-2: Subsidiary Ledgers and General Ledger Sales
Transactions and Returns
Summary: Merchandise companies are divided in two categories: retailers or wholesalers. The retailers
are merchants who buy goods from wholesalers for resale to customers. Wholesales companies are
merchants that buy from the manufacturing or supplier and sell inventory to retailers.
A sales invoice is a bill sent to customers indicating the total amount due the company for the sale(s) on
credit (See Fig 9.14). The invoice also indicates: the invoice number, the customer’s name and address,
the date of the sale, and the credit terms allowed to the customer.
Key Concepts: Wholesalers, sales invoice, accounts receivable subsidiary ledger, subsidiary ledger,
controlling account-accounts receivable, credit memorandum.
Lecture Outline:
1. Accounts Receivable Subsidiary Ledgers:
a. General ledger balance supported by list of customers owing money.
2. To clarify the difference in updating the general ledger versus the subsidiary ledger:
a. You will post to the general ledger and record to the subsidiary ledger.
b. The word post refers to information that is moved from the general journal to the general
ledger.
Sage 50 with the customer accounts stored on either the computer’s hard drive or
in the Cloud.
ii. The subsidiary ledger can be organized alphabetically based on customers’
names. New customers can be added and inactive customers deleted.
iii. The account title Accounts Receivable in the general ledger is called the
controlling account—Accounts Receivable because it summarizes or controls the
3. A credit memorandum is prepared by the seller and:
a. Notifies a customer that the amount of the goods returned or the amount allowed for
damaged goods has been subtracted (credited) from the customer’s ongoing account with
the company.
b. The journal entry to record the credit memorandum debits Sales Returns and Allowances
and credits Accounts Receivable (in the customer’s subsidiary ledger account).
Teaching Tips/Strategy: Use the Concept Check #6 regarding a credit memorandum. Exercise 9A-5 can
be used to demonstrate concepts of this unit.
Use the “Ten-Minute Quiz” questions #4, #8, #9, and #10 to reinforce the Learning Objective #2
concepts.
Learning Unit 9-3: Cash Receipt Transactions and Preparation of
Schedule of Accounts Receivable
Summary: The schedule of accounts receivable is an alphabetical list of the companies that have an
outstanding balance in the accounts receivable subsidiary ledger. This total should be equal to the balance
of the Accounts Receivable controlling account in the general ledger at the end of the month. (See Figure
9.23)
Key Concepts: Schedule of accounts receivable
Lecture Outline:
1. There are only a few transactions where the company receives cash.
Journal Entries are:
1. Owner investment in the business:
2. Cash merchandise sale in a perpetual inventory system:
Dr. Cash XX
3. Collection of accounts receivable from prior credit sale (with a sales discount. If there is
no discount, the journal entry omits the sales discount account.):
4. Cash sales with of assets other than inventory (for example, equipment):
Dr. Cash XX
Cr. Store Equipment XX
Teaching Tips/Strategy: As a classroom demonstration, complete all required journal entries using
Exercise 9A-5. Use Problems 9A-2, 9A-3, and 9A-4 to assess the understanding of the required entries.
Teaching Tips/Strategy: Each chapter contains a Try It! at the end of each Learning Unit. The Try its!
are intended as practice for students and/or as checking of student understanding. There is also a
Name Date Section
CHAPTER 9
TEN-MINUTE QUIZ
Circle the letter of the best response.
1. Sales Discounts is a:
a. Revenue account
b. Expense account
c. Contra-Revenue account
d. Contra-Expense account
2. A business sells goods for $400 with terms 2/10, n/30 on July 15. How much cash will the
business receive if they receive payment on July 24?
a. $268
b. $368
c. $392
d. $400
3. A business sells goods for $500 with terms 2/10, n/30 on July 5. What is the sales discount if
they receive payment on July 25?
a. $0
b. $5
c. $25
d. $30
4. If a business sells merchandise for $230 and later issues the customer a credit memorandum for
$33 dollars, the customer’s account receivable balance is:
a. $33
b. $197
c. $230
d. $263
5. A company collects sales tax of 5% on cash sales of $300, the journal entry is:
a. Cash $300
Sales $300
b. Cash $300
Sales $285
Sales Tax Payable $15
c. Cash $315
Sales $315
d. Cash $315
Sales $300
Sales Tax Payable $15
6. The amount of sales tax collected is a:
a. liability to the business collecting the tax
b. expense to the business collecting the tax
c. revenue to the business collecting the tax
d. profit to the business collecting the tax
7. A business makes a sale on account and the customer returns the item. When recording the return,
the business issues a:
a. sales invoice
b. sales credit
c. credit memorandum
d. debit memorandum
8. The total of the accounts receivable subsidiary ledger should equal:
a. the sales on account for the month less the cash received from the credit customers
b. the sales on account less the sales discounts taken
c. the sales on account less the sales returns and allowances
d. the sales on account less the discounts and returns and allowances taken less the cash
received from the credit customers
9. The entries in the sales journal must also be recorded separately to:
a. the accounts receivable general ledger account
b. the accounts receivable subsidiary ledger accounts
c. the accounts receivable controlling account
d. the sales account
10. A single summarizing account in the general ledger, summarizing all the accounts in a subsidiary
ledger such as accounts receivable, is referred to as a:
a. summary account
b. contra-account
c. general account
d. controlling account
Answer Key to Chapter 9 Quiz
1. c