Chapter 9


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Chapter 9

  1. 1. Journalizing Purchases and Cash Payments Chapter 9
  2. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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