2. Merchandising Business Organized as a
Corporation
How is a Merchandising Business different from a Service
Business?
How is a Retail Merchandising Business different from a
Wholesale Merchandising Business?
How is a Corporation different from a Proprietorship?
Because of the differences noted above, the accounting is also
different (to some extent)
Review the Chart of Accounts on page 231 with the one on page
3 – identify 10 significant differences.
3. Special Journals
Purchases Journal
For purchases of merchandise on account (P)
Cash Payments Journal
For all cash payments (C) or bank service charges (M)
Sales Journal
For sales of merchandise on account (S)
Cash Receipts Journal
For all cash receipts (R, TS)
General Journal
For all other transactions (M, DM, CM)
4. Purchasing Merchandise
Merchandising businesses purchase merchandise to resell
The price they pay is the cost of merchandise
The amount added to the cost to establish the selling price is
the markup
The business from which the merchandise is purchased is the
vendor
5. Purchasing Merchandise on Account
Merchandise purchased now
but paid at a later date
Record in Purchases
Journal
Purchases – Cost account
included in the Income
Statement accounts
Purchases has a normal
‘Debit’ balance & is similar to
an expense (but it is
considered a ‘cost of
merchandise’ account)
Chart of Accounts
(5000) Cost of Merchandise
5110 Purchases
5120 Purchases Discount
5130 Purchases Returns &
Allowances
6. Cash Payments Journal
For all cash payments (C)
Paid cash for advertising, rent, etc.
Paid cash for office or store supplies
Paid cash on account to vendor
Purchased merchandise for cash
Has General Debit and Credit columns
Has 3 Special columns
1.
2.
3.
Accounts Payable Debit
Purchases Discount Credit
Cash Credit
7. Trade Discount vs. Cash Discount
Trade Discount
Discount (reduction) off list price
granted to good customers
Usually a high discount % (i.e.
30%, 40%, 50%, 60%)
List price minus the trade
discount equals the Net Invoice
amount
Record the Net Invoice amount
only
No G/L account for the Trade
Discount (not recorded)
Cash Discount
Discount offered for early
payment on invoice
Terms of purchase – 2/10,n/30
Take 2% off if paid in 10 days or
pay full balance in 30 days
Recorded as a Purchase
Discount
Contra account to Purchases
It has a ‘Credit’ balance
8. Additional Cash Payment Journal Transactions
Completing a Petty Cash report
Petty Cash Fund (used for small cash payments)
Cash Short (amount on hand is less than recorded amount –
record as a Debit)
Cash Over (amount on hand is more than recorded amount –
record as a Credit)
Starting a New Cash Payments Journal Page
Total, rule and prove totals
Carry forward balances to next journal page
9. General Journal Transactions
1.
Buying supplies on account
Debit
2.
Supplies-Store or Office
Credit
Accounts Payable/Vendor
Purchases Returns and Allowances (contra account to Purchases – it
has a ‘Credit’ balance)
Source document: Debit Memorandum (DM) – form prepared by
customer showing the deduction taken
Debit
Accounts Payable/Vendor
Credit
Purchases Returns and Allowances
10. Chapter 9 Review
1.
What type of account is Purchases? Normal balance side?
Cost account
2.
What type of accounts are both Purchases Discount and
Purchases Returns and Allowances? Normal balance side?
Contra accounts
3.
Debit side
Credit side
What is the source document for a Purchase Return and
Allowance?
Debit Memorandum
11. Chapter 9 Review
4.
Merchandise is purchased for $2,000 on March 5th with
terms 2/10,N/30.What is the amount due on
March 11
March 17
5.
________
________
Merchandise with a list price of $3,000 is purchased on
account for $1,800 on May 1.Terms are 1/15,N/30. How
much is due if paid on May 20th?
$1,800
