Chapter 11
Journals Used So Far
New Journal
Journalize:
Return of Merchandise from a
customer
Return of merchandise to a
vendor
Payment of Dividends
General Journal
• A journal with two amount columns
• Important because not every transaction can be recorded in a special
journal. For example:
• ThreeGreen buys store supplies on account
•
•
•
•
Debit: Supplies—Store
Credit: Accounts Payable
Not a cash payment, so it cannot be recorded in the cash payments journal
Not a purchase of merchandise on account, so it cannot be recorded in the purchases journal.
• Transactions that cannot be recorded in a special journal are recorded in
a general journal
Buying Supplies on
Account

General ledger controlling account,
Accounts Payable

And the vendor account in the
subsidiary ledger

Are affected by the credit part of this
entry

Therefore, both titles are recorded,
separated by a diagonal line.

The diagonal line is repeated in the
Post. Ref. column to show that the
single-credit amount will be posted to
two accounts.
Debit Memorandum for Purchases Return
and Allowances
• Purchases Return
• Credit allowed for purchase price of returned merchandise decreasing
customer’s account payable balance
• Purchases Allowance
• Merchandise is damaged but still usable, or is of a different quality than that
ordered
• Vendor allows customer to keep the merchandise at a reduced price
• Credit allowed for part of the purchase price of merchandise that is not
returned decreasing customer’s account payable balance
• A form prepared by
the customer showing
the price deduction
taken by the customer
for a return or an
allowance
• Used as source
documents for
purchases returns and
allowances
transactions.
[CONCEPT: Objective
Evidence]
Journalize Purchases Returns and Allowances
• Merchandise returns and
purchase allowances
decrease the total value of
merchandise purchased
• Purchases Returns and
Allowances is a contra
account to Purchases
• The normal account balance
of Purchases Returns and
Allowances is a credit, the
opposite of the normal debit
balance of Purchases
• Both Purchases and
Purchases Returns and
Allowances are listed in the
Cost of Goods Sold division of
a chart of accounts.
Anytime two
accounts are
on one line a
slash is in the
post reference
indicating two
accounts are
posted to for
the one credit
amount
Complete 11-1 WOT AND OWN
• Journalizing and posting transactions using a general journal.
Credit Memorandum Sales Returns and Allowances
• Sales Returns
•
•
•
•
occur when a customer returns an item because it was wrong or damaged
grants full credit to a customer
reduces the customers accounts receivable balance
reduces the overall balance of accounts receivable
• Sales allowances
• given when the customer is keeping part of the merchandise or all of it at a reduced
price
• grants partial credit to a customer
• reduces the customers accounts receivable balance
• reduces the overall balance of accounts receivable
• Credit memorandum
• Form prepared by the vendor showing the amount deducted for sales returns and
allowances
• Sales returns and sales allowances
• Decrease the amount of a business’s sales
• Is a contra account to the revenue account Sales
• Has a normal debit balance
Journalize Sales Returns and Allowances
Complete 11-2 WOT AND OWN
• Accounting for sales returns and allowances using a general journal.
•Sole proprietor can withdraw cash from a
company by recording the transaction in
the owner’s drawing account
•Corporations allow owner’s to share in
profits by distributing dividends
•The net income of a corporation can be
retained in the business or paid to
stockholders
• Corporations must decide between paying a dividend or
retaining earnings
• Stockholders like receiving dividends but sometimes a
corporation needs to expand and must retain earnings
Stockholders’ Equity Accounts Used by a Corporation
• Owners’ equity accounts for a corporation are listed
under a major chart of accounts division titled
Stockholders’ Equity
(3000) Stockholder’s Equity
3110 Capital Stock
3120 Paid in Capital in Excess of Par
3130 Retained Earnings
3140 Dividends
3150 Income Summary
11-3
Declaration and payment of
a dividend
• Capital Stock
• Total amount of a firm's capital, represented by the value of its issued common and
preferred stock
• Retained Earnings
• An amount earned by a corporation and not yet distributed to stockholders
• Net income (sales greater than expenses) increases retained earnings
• Dividends
• Earnings distributed to stockholders (corporation’s sometimes share income with
stockholders as a return on their investment)
• Dividend account is a temporary account similar to a proprietorship’s drawing account
• Each time a dividend is declared, the stockholders’ equity account, Dividends, is debited
• At the end of each fiscal period, the balance in Dividends is closed to Retained Earnings
• Board of Directors
• Group of persons elected by the stockholders to govern a corporation
• Declaring a Dividend
•
•
•
•
•
Action by board of directors to distribute corporate earnings to stockholders
Dividends are declared on one date and paid on a later date.
Not all corporations declare dividends.
The dividend is a liability that must be recorded in the corporation’s accounts.
A dividend cannot exceed the balance of the Retained Earnings account. The
Journalize a dividend declaration
Complete 11-3 WOT AND OWN
• Journalizing the declaration and payment of dividends