Chapter 3: Revisiting the Recording Process- trading firms

Retail entity has inventory so it has:

• sales revenue
• cost of sales
• gross profit

Inventory is debited for all purchases of inventory and it is credited for purchase returns and allowances. 

When inventory is sold

• accounts receivable/cash is debited
• sales is credited
• cost of sales is debited
• inventory is credited

Special journals are used in addition to a general journal to simplify the recording proces and remove the majority of trasnactions from the genral journal. There are four types

• cash receipts
• cash payments
• sales
• purchases

Manual: performed by hand

Computerpprograms: use computer accounting systems

GSt is tax imposed on most goods and services.  Tax is paid a t each stage in the production process and supply chain but it is the final consumer who bears the cost. 

Suppliers act as a tax collectors for the taxation authority. 

GST Paid to Suppliers (debit, asset account)

GST Collected (credited, liability account) 

At the end of the reporting period if the amount collected exceeds amount paid then the business pays the net amount to taxation authority. Then

GST Collected (debit)

GST Paid (credit)