- Two or more individuals form a partnership by combining their assets and skills to go into business together. They create a partnership agreement to outline partner investments, duties, income/loss division, and contingencies. - A merchandiser buys merchandise to resell, either paying with cash or purchasing on account from vendors. The purchases account tracks the cost of goods bought for resale. Special journal columns help track transactions affecting key accounts like purchases. - When transactions span multiple journal pages, the columns are totaled and proven to ensure debits equal credits before carrying totals to a new page. Special column totals can then be directly posted to accounts, saving time over individual posting.

1. Week 7

2. Two or more individuals combine their assets and
skills to go into business.
 Each individual is referred to as a partner.
 Since multiple individuals are involved in running
business the partners typically create a
partnership agreement.

◦
◦
◦
◦
Partner investments
Partner duties
How net income/net loss is divided
Contingency in case of death of a partner

3. Business that purchases and sells goods and
products (merchandise).
 Retail merchandiser sells to the consumer (end
user).
 Wholesale merchandiser buys and resells to the
retail merchandiser.
 The PURCHASES account is used to capture the
cost of the merchandise purchased by
merchandiser to sell to customers.
 Purchases has a normal debit balance.


4. In addition to general debit and credit columns (blue) this expanded
journal has numerous SPECIAL AMOUNT COLUMNS (red). A special
amount column is a journal amount column headed with an account
title and used for a specific account. Since a merchandiser has lots of
transactions that affect these accounts they are used to help
streamline the journalizing and posting process. Many transactions
can be entered on one row in the journal while the column totals for
the special amount columns can be posted at the end of the month
saving time and improving accuracy.

5. When a merchandiser buys merchandise to resell
the will either pay for the merchandise with cash
or purchase ON ACCOUNT.
 Cash: Debit Purchases and Credit Cash
 On Account: Debit Purchases and Credit
Accounts Payable for the vendor.
 Vendor if the person or business from which
goods or services are purchased.


6. The first transaction is a purchase of merchandise for cash. Notice the
special amount columns are used for both the debit and credit. The second
transaction shows the purchase of merchandise on account.
The check mark indicates that special amount columns are used so no
account needed to be identified. Remember, the account for a special
amount column is identified in the heading of the column. For the on
account transaction the vendor is identified in the Account Title column so
the business knows to whom they OWE.
It’s important to remember that the PURCHASES account is ONLY used for
the purchase of MERCHANDISE. It reflects the COST to the business.

7. 
Reflect business activities where cash is spent by the
business.
◦
◦
◦
◦

Buy supplies
Pay expense
Make on account payment
Owner withdrawal
In all these instances CASH is CREDITED!

8. Notice how all the cash payment transactions have a CREDIT for cash to
reduce that asset account. Notice that the source document for the cash
payments are checks. Notice since multiple transactions used the
general debit column an account needed to be identified so that amount
could be posted correctly. ANYTIME the general debit or general credit
column is used an account MUST be identified in the Account Title
column otherwise you wouldn’t know where to post that amount. In the
third transaction the vendor is identified in the Account Title column so
the business knows who they PAID.

9. When a merchandiser sells merchandise to a
customer for cash or sale ON ACCOUNT.
 The RETAIL merchandiser must collect SALES
TAX from the consumer (end user).
 Tax is generally a percentage of the sale amount
such as 6% (.06) or 7.5% (.075)
 Most states and localities (cities/counties) require
the tax to be collected by the business. The
business does NOT keep the tax that is collected.


10. The business collects the tax from the customer
and places it in a liability account known as Sale
Tax Payable.
 This account is a liability because the business
OWES this money to the government.
 As with all liabilities, Sales Tax Payable has a
normal CREDIT balance.


11. Sales tax rate is 7.5% (.075)
 Customer buys $96 worth of goods for cash.
 Sales tax on $96 is 96*.075 = $7.20
 That $7.20 is added to the $96 so the customer
pays $96+$7.20=$103.20
 Cash is DEBITED $103.20 (amount paid)
 Sales is CREDITED $96 (goods bought)
 Sales Tax Payable is CREDITED $7.20 (tax)


12. Sales tax rate is 6% (.06)
 Customer buys $200 worth of goods on
account.
 Sales tax on $200 is 200*.06 = $12
 That $12 is added to the $200 so the customer
OWES $200+$12=$212
 Accounts Receivable is DEBITED $212
 Sales is CREDITED $200 (goods bought)
 Sales Tax Payable is CREDITED $12 (tax)


13. The sales credit amount (the amount of goods bought) is multiplied
by the sales tax rate to calculate the sales tax payable amount. The
first transaction is a cash sale. Notice the debit to cash equals the
sales credit PLUS the sales tax payable credit. The check mark
indicates that special amount columns were used instead of the
general debit and credit columns. The second transaction is a sale on
account. Instead of cash, accounts receivable is debited the sum of
sales credit plus sales tax payable. The customer is identified in the
Account Title column so the business knows who OWES them. The
source docs for the first transaction is the cash register tape (T12) for
that day while the SI8 for the on account sale transaction reflects the
Sales Invoice for this customer (didn’t pay cash at time of sale).

14. 
Reflect business activities where cash is received by the
business.
◦ Customer makes on account payment
◦ Owner investment

In these instances CASH is DEBITED!

15. Notice that cash receipt transactions involve a DEBIT to cash. The first
transaction involves a customer paying on account. Notice that when
the customer pays their accounts receivable is CREDITED (decreased)
by the amount of the payment. The customer is identified in the
Account Title column so the business knows who paid. The second
transaction shows additional cash investment in the business by the
owner. The owner’s capital account is listed in the Account Title column
along with the associated amount in the general credit column. This
amount, of course, matches the debit to cash.

16. 


Proving and ruling the journal involves proving
the total debits equal the total credits.
When the bottom of a journal page is reached
and more transactions for the month need to be
added to a new journal page then you prove and
rule.
When the end of the month arrives and you want
to post the transactions to the ledger you prove
and rule.

17. When the journal page is full and a new journal
page is needed for the month the columns are
totaled by drawing a single line (rule) then total
debits are compared to total credits (prove).
 If total debits=total credits (proves) a double line is
entered under the column totals and the column
totals from the filled journal page are carried
forward to the top of the new journal page.


18. The column TOTALS from the special amount
columns can be posted. After all, the amount is
going into the account specified in the column
heading. For example, the special amount column
total for CASH DEBIT can be posted as a debit to
the cash account in the ledger. All of the individual
cash debit amounts do NOT need to be posted.
 All of the column totals for the special amount
columns can be posted.


19. 
The column TOTALS from the general debit and
credit columns are NOT posted. What account
would you use anyway? The individual amounts in
the general debit and credit columns must be
posted to the account identified in the Account
Title column.