Learning Objectives

Notes

14.1              To define accounting terms related to departmental purchases and cash payments.  (COM)

An accounting system showing accounting information for two or more departments is called a departmental accounting system.  In this type of system, gross profit is calculated for each department; therefore, the general ledger must include a number of separate departmental accounts.  Examples of firms that are commonly organized on a departmental basis are department stores and stores that specialize in items such as shoes, furniture, computers and sporting goods.

14.2              To identify accounting concepts, principles, and practices related to departmental purchases and cash payments.

14.3              To record departmental purchases, purchase returns and allowances, and cash payments including GST.  (IL)

If the GST Charged on Sales is greater than the GST Paid on Purchases, a payment must be made to Canada Customs and Revenue Agency.  Payments are generally made monthly, quarterly or annually depending upon the volume of sale by a business.

14.4              To identify banking practices and reconcile a bank statement.

Learning Objectives

Notes

14.5              To identify and use accounting terminology associated to departmental sales and cash receipts.

Any analysis of departmentalized accounting information for decision-making requires the use of gross profit on sales from business operations.  Another term used for gross profit on operations is gross margin on operations which relates to a company’s profit and is more suitable in generally accepted accounting principles.

14.6              To journalize sales, sales returns and allowances, and cash receipts transactions of a departmentalized nature.  (IL)

The sales revenue from each department minus the cost of goods sold for each department is referred to as the gross profit or gross margin.  By using this decision-making method, each department can then be analyzed to determine whether it is earning an appropriate share or not.  In order for management to compute gross profits by department, they must set up their accounting system to identify each department at the time the transaction is recorded.  Departmental balances must be known for merchandise inventory, purchases, sales, returns and allowances, cash payments and receipts.

There are five classifications of the GST:

1.       Tax-exempt – GST Exempt goods and services include most educational services (including child day-care services), financial services, health and dental services, services by government and other specified public bodies, and residential rents and the sale of used housing.

2.       Non-taxable – Sellers of goods and services with gross sales less than $30,000.00 do not have to register for a GST number.  Therefore, their goods and services classified as tax-exempt and non-taxable will be able to receive a rebate on the GST paid on their purchases.

3.       Zero-rated – Zero-rated items are goods and services that at the time of this publication have the GST percentage set to 0% which seems to be the same thing as GST exempt since there is no charge to the customer.  However, sellers of zero-rated goods and services (including any product or service that is exported, most agricultural and fish products, certain major purchases by farmers and fishers, basic groceries, and prescribed drugs and medical devices) will receive a rebate of any GST they paid in acquiring those goods and services from their suppliers.  Sellers of GST exempt goods and services whose gross sales exceed $30,000.00, will not.

The government treats businesses selling tax-exempt and non-taxable goods and services as if they were the final consumers of the goods and services.

4.       GST Excluded – The GST is added on at the till and is not included already in the selling price as with GST Included.  If the GST is not included in the selling price, retailers must indicate it on the sales slip.  Businesses that include the GST in the selling price should check with Canada Customs and Revenue Agency for current regulations.

5.       If a business calculates that its tax paid on goods and services (GST Paid on Purchases) is greater than its tax collected through the sales of merchandise (GST Charged on Sales), a refund will be sent by Canada Customs and Revenue Agency.  When a sale is made to a customer and GST is applied, the liability account, GST Charged on Sales, is increased on the credit side.

When a purchase is made by the retailer and GST is applied, the contra-liability account, GST Paid on Purchases, is decreased on the debit side.  If the GST Paid on Purchases account is greater than the GST Charged on Sales, the retail outlet will receive a refund from the federal government.

14.7              To prove the equality of debits and credits in the special journals and cash.

14.8              To recognize the order of posting of the special journals.  (IL)

The recommended order for posting departmental journals is:

·         Purchases journal
·         Purchases returns and allowances journal
·         Sales journal
·         Sales returns and allowances journal
·         General journal
·         Cash receipts journal
·         Cash payments journal.

14.9              To understand accounting terminology related to departmental payroll.

14.10           To relate accounting concepts, principles, and practices to departmental payroll systems.  (CCT)

Timecards and/or commissions records show the total earnings to be charged for each employee of a departmental organization.  These earning are entered in columns of the payroll register according to the department in which the employee works.  Non-sales employees’ salaries, such as accounting department employees are entered in an administration salaries column.

Learning Objectives

Notes

14.11           To define accounting terms related to departmentalized financial reporting.

14.12           To understand concepts, principles, and practices related to departmentalized financial reporting.

14.13           To prepare interim and end-of-fiscal-period work for a departmentalized business.  (IL)

14.14           To analyse departmentalized financial statements using performance ratios.  (CCT)