To provide a solution for these challenges the United Nations created the

To provide a solution for these challenges the united

This preview shows page 3 - 6 out of 97 pages.

To provide a solution for these challenges, the United Nations created the Convention on Contracts for the International Sales of Goods (CISG). The CISG provides guidelines and laws that govern the international sale of goods. Analyzing Sales Transactions The sale of merchandise that will be paid for at a later date is known as a sale on account, a charge sale, or a credit sale. The sale on account is made to an account-holding customer. This account is also known as a charge account. The Accounts Receivable Subsidiary Ledger Accounts Receivable Subsidiary Ledger Businesses that involve few charge customers usually have an accounts receivable account for each customer in the general ledger. However, a large business with many charge customers may need to set up a separate ledger that contains an account for each charge customer. This ledger is known as the accounts receivable subsidiary ledger. A subsidiary ledger is a ledger, or book, that contains the detailed data summarized as a controlling account in the general ledger. Accounts receivable is a controlling account because it balances and equals the total of all account balances in the subsidiary ledger. The balance of accounts receivable, therefore, serves as a control on the accuracy of the balances in the account receivables subsidiary ledger when posting is complete. Recording a Sale on Account According to the revenue recognition principle, revenue for a sale on account is recognized and recorded when the sale is earned. Revenue must also be realizable, which means that it is expected to be converted to cash. Below is a typical business transaction: On January 5, 2005, Olympic Sports Wear sold merchandise on account to Kelvin Sports for $400 plus $24 in sales tax, with sales slip number 105.
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Identify : The accounts affected through this transaction are Accounts Receivable (controlling), Accounts Receivable: Kelvin Sports (subsidiary), Sales, and Sales Tax Payable. Classify : Accounts Receivable (controlling) and Accounts Receivable: Kelvin Sports (subsidiary) are asset accounts, Sales is a revenue account, and Sales Tax Payable is a liability account. Effects : Accounts Receivable (controlling) and Accounts Receivable: Kelvin Sports (subsidiary), increase by $424. Sales increases by $400 and Sales Tax Payable increases by $24. Apply Debit Rule : Increase to asset accounts are recorded as debit. Accounts Receivable (controlling) and Accounts Receivable: Kelvin Sports (subsidiary) are debited. Apply Credit Rule : Increases to revenue and liability accounts are recorded as credit; credit Sales for $400 and Sales Tax Payable for $24 Prepare T-Accounts : Post a Journal Entry : The journal entry for the transaction is show below:
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Sales Returns and Allowances Sometimes, customers may be dissatisfied with their purchases due to damage or defect. In such cases, merchants allow them to return the merchandise. Any merchandise returned for credit or a cash refund is known as a sales return. A price reduction granted to the customer for damaged goods is known as a sales allowance.
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