The Accounting Cycle for a Merchandising             Corporation!!!Chapter 15: Accounting forPurchases and Cash Payments  ...
Essential Outcomes15. Understands relationship between purchases, other    assets, and returns, allowances and discounts b...
1. Purchase                merchandise                  for resale                               2. Sale of goods  5. Prof...
All items bought/purchased from Wal-Mart   are purchased from wholesalers and                suppliers.
The Purchasing Process
Four Stages of buying:1.   Requesting needed items2.   Ordering from a supplier3.   Verifying items received4.   Processin...
Requesting Needed Itemso Small business: owner  does all buying of  merchandiseo Large business:  purchasing department bu...
Requesting Needed ItemsPurchase requisition: departments make written request to managers to purchase items for departmen...
Ordering from Supplier Purchase Order <PO>: after requisition form is  approved, fill out order form Information for pur...
Verifying Items ReceivedWhen order is shipped to buyer, packing slip included with orderPacking Slip: form that lists it...
Processing Supplier’s Invoice        Supplier prepares “invoice” for         buyer        Invoice sent; accounting clerk...
Purchases DiscountPurchases Discount: supplier offers customer (or buyer) cash discount for early paymentPurchases Disco...
Purchases DiscountCredit terms:Merchandised Purchase x Discount Rate = Discount      $2,300           x   .02 (2%)   = $4...
The Purchases AccountPurchases Account: when business buys merchandise to sell to customers, cost of merchandise is recor...
The Purchases AccountMerchandise purchased for resale is cost of doing businessPurchases Account: normal balance: debit...
Analyzing & Recording Purchases on             Account
Accounts Payable & Accounts Payable Subsidiary                   LedgerWhen business purchases from many suppliers on acc...
Accounts Payable & Accounts Payable Subsidiary                   LedgerAccounts Payable Subsidiary Ledger: listing of sup...
Recording the Purchase of Merchandise              on account
Recording Merchandise Purchased for ResaleOn Dec. 14, On Your Mark purchased $2,300 in merchandise on account from Pro Ru...
Purchased $900 in merchandise on  account from Sunrise Novelty     Supply. Invoice SN 110. Purchases       A/P – Sunrise N...
Posting
Posting to Accounts Payable & Accounts Payable               Subsidiary Ledger1. First: Post to General Ledger—Accounts   ...
A ComparisonAccounts Receivable        Accounts Payable• Controlling Account     • Controlling Account• Used for merchandi...
Recording Other Purchases on Account
Recording other Purchases on Account Purchase/buy supplies, equipment, land, etc. for cash or  on account The Purchases ...
Purchases Returns & Allowances
Purchases Returns and Allowances Contra account : to Purchases, meaning it has  opposite balance Normal balance: credit...
Debit MemorandumOur business want to return $900 of merchandise purchased on account due to damage. Entry would be as fol...
A Comparison  Sales Returns & Allowances    Purchases Returns & Allowances• Contra account to Sales      • Contra acct to ...
Analyzing Cash Payment Transactions
Analyzing Cash PaymentsUsually all payments by business are paid by checkInternal control measures to safe guard moneyT...
Purchases Discounts Purchases Discount: used whenever company pays  early on merchandise bought/purchased on  account Pu...
1. Purchases DiscountsPurchase Invoice has credit terms of 2/10, n/30. Invoice purchase costs $1,150.Company pays bill w...
1. Purchases DiscountsJournal Entry:Accounts Payable         $1,150    Purchases Discount            $      23    Cash in...
A Comparison    Sales Discount             Purchases Discount Customer pays early       • Business (buyer of  within cred...
2. Analyzing Insurance Payments        Businesses usually buy insurance to         protect company against fire, flood,  ...
Analyzing Insurance Payments At end of year, used amount of insurance or the  “expired amount” becomes an adjusting entry...
Journalizing Insurance Payments On December 17, pay $1,500 to Keystone  Insurance Company for premium on six-month  insur...
3. Other Cash Payments: Shipping cost of              merchandise Buy merchandise from supplier, someone must  pay for sh...
3. Shipping cost of merchandise FOB destination: supplier  pays shipping costs from  supplier to buyer’s business. FOB S...
Transportation In Journal Entry FOB Shipping Point: additional cost to  merchandise purchased. Account used: Transportat...
3. Bankcard Feeso Fee that banks charge for handling bankcard  sales slipso Usually percentage of total amount on  bankcar...
That’s all folks!!!Now, on to some class activities!!!
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Acct chapter 15 class presentation

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Acct chapter 15 class presentation

  1. 1. The Accounting Cycle for a Merchandising Corporation!!!Chapter 15: Accounting forPurchases and Cash Payments Welcome to…
  2. 2. Essential Outcomes15. Understands relationship between purchases, other assets, and returns, allowances and discounts by being able to: a. Read, calculate & record credit terms for suppliers b. Explain the procedures for processing a purchase on account c. Describe the accounts used in the purchasing process. d. Record a variety of purchases and cash payment transactions e. Post to the accounts payable subsidiary ledger f. Define the accounting terms used in this chapter.
  3. 3. 1. Purchase merchandise for resale 2. Sale of goods 5. Profit for cash or on account 4. Pay expenses: rent, utilities, 3. Collect cash salaries, etc. from accountsFirst step for business is #1
  4. 4. All items bought/purchased from Wal-Mart are purchased from wholesalers and suppliers.
  5. 5. The Purchasing Process
  6. 6. Four Stages of buying:1. Requesting needed items2. Ordering from a supplier3. Verifying items received4. Processing the supplier’s invoice
  7. 7. Requesting Needed Itemso Small business: owner does all buying of merchandiseo Large business: purchasing department buys items for entire company  equipment  supplies  inventory
  8. 8. Requesting Needed ItemsPurchase requisition: departments make written request to managers to purchase items for department thru this requisition formOnce approved, original copy sent to purchasing department & person making requests receives copy
  9. 9. Ordering from Supplier Purchase Order <PO>: after requisition form is approved, fill out order form Information for purchase order comes off purchase requisition formOn PO form: 1. Quantity 2. Description 3. Unit price 4. Total cost 5. Supplier’s name & address 6. Date needed 7. Shipping method
  10. 10. Verifying Items ReceivedWhen order is shipped to buyer, packing slip included with orderPacking Slip: form that lists items included in shipmentUse packing slip to make sure all items have been includedBuyer does not pay for items that were missing or damaged or unordered
  11. 11. Processing Supplier’s Invoice Supplier prepares “invoice” for buyer Invoice sent; accounting clerk checks for accuracy Invoice is source document for journal entry for buyer Before invoice is journalized, processing stamp placed on invoice: date to be paid, discount amount, amount to be paid & check #
  12. 12. Purchases DiscountPurchases Discount: supplier offers customer (or buyer) cash discount for early paymentPurchases Discount and Sales <Cash> discount figured same wayCredit terms: 2/10, n/30Discount period: first 10 days of billAfter 10 days, pay full amount
  13. 13. Purchases DiscountCredit terms:Merchandised Purchase x Discount Rate = Discount $2,300 x .02 (2%) = $46 $2,300 - $46 = $2,254 amount buyer owes
  14. 14. The Purchases AccountPurchases Account: when business buys merchandise to sell to customers, cost of merchandise is recorded to this accountPurchases Account: 1. Temporary account 2. Classified as a cost of merchandise account 3. Cost of merchandise accounts: contain actual cost to business of merchandise sold to customers
  15. 15. The Purchases AccountMerchandise purchased for resale is cost of doing businessPurchases Account: normal balance: debitUsed whenever merchandise is sold for resale
  16. 16. Analyzing & Recording Purchases on Account
  17. 17. Accounts Payable & Accounts Payable Subsidiary LedgerWhen business purchases from many suppliers on account, hard to keep track of debts by using only Accounts Payable account in General LedgerAccounts Payable: controlling accountControlling account: where balance of all accounts are set up
  18. 18. Accounts Payable & Accounts Payable Subsidiary LedgerAccounts Payable Subsidiary Ledger: listing of suppliers that company purchases from on continuous bases on accountThe total of all of suppliers listed in Accounts Payable Subsidiary ledger should equal balance in Accounts Payable in General Ledger
  19. 19. Recording the Purchase of Merchandise on account
  20. 20. Recording Merchandise Purchased for ResaleOn Dec. 14, On Your Mark purchased $2,300 in merchandise on account from Pro Runner Warehouse, Inv. #7894 Purchases A/R or Cash P $2,300 $2,300
  21. 21. Purchased $900 in merchandise on account from Sunrise Novelty Supply. Invoice SN 110. Purchases A/P – Sunrise Novelty $900 $900
  22. 22. Posting
  23. 23. Posting to Accounts Payable & Accounts Payable Subsidiary Ledger1. First: Post to General Ledger—Accounts Payable (controlling account)—return to General Journal & put account # on top of diagonal line2. Second: Post to individual account in Subsidiary ledger—return to General Journal & put check mark below diagonal line in Post. Ref.
  24. 24. A ComparisonAccounts Receivable Accounts Payable• Controlling Account • Controlling Account• Used for merchandise • Used for merchandise sold on account purchased on account• Normal Balance: Debit • Normal Balance: Credit• Accounts Receivable • Accounts Payable Subsidiary Ledger Subsidiary Ledger• Double Post • Double Post• Sales Returns & • Purchases Returns & Allowances Allowances• Sales Discount • Purchases Discount• Credit Memo • Debit Memo
  25. 25. Recording Other Purchases on Account
  26. 26. Recording other Purchases on Account Purchase/buy supplies, equipment, land, etc. for cash or on account The Purchases account is ONLY used for buying of “merchandise”. Accounts used for buying other assets will be debited to that particular asset account.
  27. 27. Purchases Returns & Allowances
  28. 28. Purchases Returns and Allowances Contra account : to Purchases, meaning it has opposite balance Normal balance: credit Purchase Returns: business returns purchased merchandise to creditor for full credit Purchases allowance: business keeps less than satisfactory merchandise and pays reduction in price Source document: Debit Memorandum
  29. 29. Debit MemorandumOur business want to return $900 of merchandise purchased on account due to damage. Entry would be as follows Purchases Returns & A/P Sunrise Novelty Allowances $900 $900
  30. 30. A Comparison Sales Returns & Allowances Purchases Returns & Allowances• Contra account to Sales • Contra acct to Purchases• Source document: Credit • Source document: Debit Memorandum Memorandum• Used for sales customers • Used by business who who return merchandise purchased merchandise due to wrong size, wrong due to wrong size, wrong color, defective, etc. color, defective, etc.• Normal Balance: Debit • Normal Balance: Credit
  31. 31. Analyzing Cash Payment Transactions
  32. 32. Analyzing Cash PaymentsUsually all payments by business are paid by checkInternal control measures to safe guard moneyThree types of cash payments that occur frequently: 1. Purchases Discounts 2. Purchase of Insurance 3. Purchase of Items bought on account
  33. 33. Purchases Discounts Purchases Discount: used whenever company pays early on merchandise bought/purchased on account Purchases Discount: contra asset account to Purchases account (has opposite normal balance) Normal Balance: credit
  34. 34. 1. Purchases DiscountsPurchase Invoice has credit terms of 2/10, n/30. Invoice purchase costs $1,150.Company pays bill within 10, must figure purchases discount$1,150 x .02 = $23.00$1,150 - $23 (discount) = $1,127
  35. 35. 1. Purchases DiscountsJournal Entry:Accounts Payable $1,150 Purchases Discount $ 23 Cash in Bank 1,127 Check #115
  36. 36. A Comparison Sales Discount Purchases Discount Customer pays early • Business (buyer of within credit terms merchandise) pays early Control account: Sales within credit terms Normal Balance: Debit • Control account: Purchases Accounts affected: Cash • Normal Balance: Credit in Bank (dr); Sales • Accounts affected: A/P Discount (dr) & A/R (dr) & Purchases Discount credit (cr); Cash in Bank (cr)
  37. 37. 2. Analyzing Insurance Payments Businesses usually buy insurance to protect company against fire, flood, etc. Usually company pays 6-month premium in advance for protection of its company every two years Premium: cost of insurance protection Premiums charged to account called, “Prepaid Insurance.”
  38. 38. Analyzing Insurance Payments At end of year, used amount of insurance or the “expired amount” becomes an adjusting entry (more on this later). Prepaid Insurance: asset account Normal Balance: debit
  39. 39. Journalizing Insurance Payments On December 17, pay $1,500 to Keystone Insurance Company for premium on six-month insurance policy, check #1001 Journal Entry:Prepaid Insurance $1,500 Cash in Bank $1,500 Check #1001
  40. 40. 3. Other Cash Payments: Shipping cost of merchandise Buy merchandise from supplier, someone must pay for shipping (moving) merchandise from warehouse to place of sale Shipping terms determine who pays shipping charges: either buyer or supplier FOB: Means Free on Board
  41. 41. 3. Shipping cost of merchandise FOB destination: supplier pays shipping costs from supplier to buyer’s business. FOB Shipping point: buyer pays the shipping charge from supplier’s shipping point to buyer’s business. FOB Shipping Point: additional cost to merchandise purchased.
  42. 42. Transportation In Journal Entry FOB Shipping Point: additional cost to merchandise purchased. Account used: Transportation In Transportation In: NB: Debit Journal Entry:Transportation In Debit Cash in Bank Credit
  43. 43. 3. Bankcard Feeso Fee that banks charge for handling bankcard sales slipso Usually percentage of total amount on bankcard sales slips.o Bankcard Fees: expense & has NB-debito Journal Entry:Bankcard Fees Expense $75 Cash in Bank $75
  44. 44. That’s all folks!!!Now, on to some class activities!!!

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