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Acct chapter 15 class presentation


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Accounting 1

Accounting 1

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  • 1. The Accounting Cycle for a Merchandising Corporation!!!Chapter 15: Accounting forPurchases and Cash Payments Welcome to…
  • 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. 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. All items bought/purchased from Wal-Mart are purchased from wholesalers and suppliers.
  • 5. The Purchasing Process
  • 6. Four Stages of buying:1. Requesting needed items2. Ordering from a supplier3. Verifying items received4. Processing the supplier’s invoice
  • 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. 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. 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. 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. 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. 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. 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. 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. 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. Analyzing & Recording Purchases on Account
  • 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. 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. Recording the Purchase of Merchandise on account
  • 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. Purchased $900 in merchandise on account from Sunrise Novelty Supply. Invoice SN 110. Purchases A/P – Sunrise Novelty $900 $900
  • 22. Posting
  • 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. 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. Recording Other Purchases on Account
  • 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. Purchases Returns & Allowances
  • 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. 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. 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. Analyzing Cash Payment Transactions
  • 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. 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. 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. 1. Purchases DiscountsJournal Entry:Accounts Payable $1,150 Purchases Discount $ 23 Cash in Bank 1,127 Check #115
  • 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. 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. 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. 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. 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. 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. 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. 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. That’s all folks!!!Now, on to some class activities!!!