LESSON 9-1 - Journalizing Purchases Using a Purchases Journal Service business vs. merchandising business Service business sells services for a fee nail salon, attorney Merchandising business purchases and sells goods t-shirts, sports equipment Retail merchandising business sells goods to those who use or consume the goods (Target, Wal Mart, etc.) Wholesale merchandising business buys and resells merchandise to retail merchandising businesses (company that sells merchandise to Target or Wal Mart) Merchandising business uses many of the same accounts as a service business, but it will have additional accounts for the purchase and sale of merchandise (chart of accounts, pg. 231) Hobby Schack (p. 235)
2 Business Structures Sole Proprietorship Owned by one person limits resources for the business Corporation organization with the legal rights of a person and which many persons may own Formed by receiving approval from a state or federal agency Can own property, incur liabilities, and enter into contracts in its own name Share of stock a unit of ownership Capital stock total shares of ownership Stockholder an owner of one or more shares of a corporation Biggest difference between proprietorship and corporation is capital accounts Special Journal used to record only one kind of transaction LESSON 9-1
3 PURCHASING MERCHANDISE page 236 Cost of merchandise price a business pays for goods it purchases Mark-up amount added to cost of merchandise to establish selling price Mark-up is needed in order to earn a profit Vendor a business from which merchandise or other supplies is bought Purchases account used for recording the cost of merchandise -cost account (reduces capital) -temporary account LESSON 9-1
4 PURCHASES ON ACCOUNT page 236 Purchases on account transaction in which the merchandise purchased is to be paid for later CONCEPT: Historical Cost actual amount paid for merchandise or other items bought is recorded Businesses that purchase from many vendors have many accounts for vendors Accounts Payable summarizes the total amount owed all vendors LESSON 9-1
5 PURCHASES JOURNAL page 237 Purchases Journal special journal used to record only purchases of merchandise on account Special amount column journal amount column headed with an account title Special amount columns are used for frequently occurring transactions Eliminates writing general ledger account titles in the Account Title column and saves time LESSON 9-1
PURCHASE INVOICE form describing the goods sold, quantity, and price 6 page 238 1 4 2 3 1. Stamp the date received and purchase invoice number. 2. Place a check mark by each amount. 3. Initials of the person who checked the invoice. 4. Review the vendor s terms. LESSON 9-1
PURCHASING MERCHANDISE ON ACCOUNT 7 page 239 November 2. Purchased merchandise on account from Crown Distributing, $2,039.00. Purchase Invoice No. 83. 1 2 3 4 1. Write the date. 2. Write the vendor name. 3. Write the purchase invoice number. 4. Write the amount of the invoice. LESSON 9-1
TOTALING AND RULING A PURCHASES JOURNAL 8 page 240 1 2 3 4 5 1. Rule a single line across the amount column. 2. Write the date. 3. Write the word Total. 4. Add the amount column. 5. Write the total. 6. Rule double lines across the amount column. 6 LESSON 9-1
9 TERMS REVIEW page 241 merchandise merchandising business retail merchandising business wholesale merchandising business corporation share of stock capital stock stockholder special journal cost of merchandise markup vendor purchase on account purchases journal special amount column purchase invoice terms of sale LESSON 9-1
LESSON 9-2 Journalizing Cash Payments Using a Cash Payments Journal
11 CASH PAYMENTS JOURNAL page 242 Cash Payments Journal special journal used to record only cash payment transactions Cash discount deduction that a vendor allows on the invoice amount to encourage prompt payment Purchase discount cash discount on purchases taken by a customer General amount column amount column that is not headed with an account title (ex. Monthly rent) Source document is usually a check LESSON 9-2
12 CASH PAYMENT OF AN EXPENSE page 243 November 2. Paid cash for advertising, $150.00. Check No. 292. 1 2 3 4 5 1. Write the date. 2. Write the account title. 3. Write the check number. 4. Write the debit amount. 5. Write the credit amount. LESSON 9-2
13 BUYING SUPPLIES FOR CASH page 243 November 5. Paid cash for office supplies, $94.00. Check No. 293. 1 2 3 4 5 1. Write the date. 2. Write the account title. 3. Write the check number. 4. Write the debit amount. 5. Write the credit amount. Supplies are not recorded in the Purchases account because supplies are not intended for sale. LESSON 9-2
14 CASH PAYMENTS FOR PURCHASES page 244 November 7. Paid Cash to XYZ Company for merchandise with a list price of $1,500.00, less a 60% trade discount. Check No. 301. 1 2 3 4 5 1. Write the date. 2. Write the account title. 3. Write the check number. 4. Write the debit amount. 5. Write the credit amount. 100% - 60% discount= 40% $1500.00 x 40% = $600.00 Invoice amount List price retail price listed in a catalog or on website Trade discount reduction in the list price granted to customers LESSON 9-2
CASH PAYMENTS ON ACCOUNT WITH PURCHASES DISCOUNTS 15 2/10, n/30 common term of sale read two ten, net thirty Two ten means that 2% of the invoice amount may be deducted if the invoice is paid within 10 days of the invoice date Net Thirty means that the total invoice amount must be paid within 30 days Purchases discount general ledger account used to record discounts on purchases Contra account account that reduces a related account Balance is opposite the balance of the related account (Purchases normal debit balance; Purchases discount normal credit balance Cash discounts must be recorded because they decrease the recorded invoice amount LESSON 9-1
CASH PAYMENTS ON ACCOUNT WITH PURCHASES DISCOUNTS page 245 16 November 8. Paid cash on account to Gulf Craft Supply, $488.04, covering Purchase Invoice No. 82 for $498.00, less 2% discount, $9.96. Check No. 302. 5 6 1 2 1. Write the date. 2. Write the account title of the vendor. 3. Write the check number. 4. Write the debit amount. 5. Write the credit amount. 6. Write the credit amount. 3 4 LESSON 9-2
CASH PAYMENTS ON ACCOUNT WITHOUT PURCHASES DISCOUNTS page 246 17 November 13. Paid cash on account to American Paint, $2,650.00, covering Purchase Invoice No. 77. Check No. 303. 1 2 3 4 5 1. Write the date. 2. Write the vendor account title. 3. Write the check number. 4. Write the debit amount. 5. Write the credit amount. LESSON 9-2
LESSON 9-3 Performing Additional Cash Payments Journal Operations
19 PETTY CASH REPORT Errors may be made when making payments from a petty cash fund Cash short petty cash amount on hand is less than a recorded amount Cash over - petty cash amount on hand is greater than a recorded amount Cash Short and Over temporary account to record petty cash short and over Cash Short and Over Debit Cash short Credit Cash over LESSON 9-1
20 PETTY CASH REPORT page 248 1. Write the date and custodian name. 2. Write the fund total. 1 3. Summarize petty cash payments. 4. Calculate and write the 3 total payments. 5. Calculate and write the recorded amount on hand. 5 6. Write the actual amount of cash on hand. 7. Subtract the actual amount on hand from the recorded amount on hand and write the amount. 8. Write the total of the replenish amount. 6 7 2 4 8 LESSON 9-3
21 REPLENISHING A PETTY CASH FUND page 249 1. Date 2. Account titles 3. Check number 4. Expense amounts 5. Cash short as a debit; cash over as a credit 6. Total cash payment 4 5 6 1 2 3 LESSON 9-3
TOTALING, PROVING, AND RULING A CASH PAYMENTS JOURNAL PAGE TO CARRY TOTALS FORWARD 1 22 page 250 2 3 4 5 1. Rule a single line. 2. Write the date. 6 3. Write the words Carried Forward in the Account Title column. 4. Place a check mark in the Post. Ref. column. 5. Write each column total. 6. Rule double lines. You must verify that total debits = total credits. A journal is proved and ruled whenever a page is full and always at the end of the month. LESSON 9-3
STARTING A NEW CASH PAYMENTS JOURNAL PAGE 23 page 251 1 2 3 4 5 1. Write the journal page number. 2. Write the date. 3. Write the words Brought Forward in the Account Title column. 4. Place a check mark in the Post. Ref. column. 5. Record the column totals. LESSON 9-3
TOTALING, PROVING, AND RULING A CASH PAYMENTS JOURNAL AT THE END OF A MONTH 24 page 252 1 2 3 4 1. Rule a single line. 2. Write the date. 3. Write the word Totals in the Account Title column. 4. Write each column total. 5. Rule double lines. 5 You must verify that total debits = total credits. LESSON 9-3
25 TERMS REVIEW page 253 cash short cash over LESSON 9-3
LESSON 9-4 - Journalizing Other Transactions Using a General Journal Not all transactions can be recorded in special journals These entries are recorded in the general journal (ex. Buying supplies on account)
MEMORANDUM FOR BUYING SUPPLIES ON ACCOUNT page 254 27 LESSON 9-4
28 BUYING SUPPLIES ON ACCOUNT November 6. Bought store supplies on account from Gulf Craft Supply, $210.00. Memorandum No. 52. page 255 1 2 5 1. Write the date. 5. Write the account title and 2. Write the account title. vendor name. 3. Write the memorandum number. 4. Write the debit amount. 3 6 4 6. Place a diagonal line in the Post. Ref. column. 7. Write the credit amount. 7 LESSON 9-4
DEBIT MEMORANDUM FOR PURCHASES RETURNS AND ALLOWANCES 29 Purchase return credit allowed for the purchase price of returned merchandise, resulting in a decrease in the customer s accounts payable Purchases Allowance credit allowed for part of the purchase price of merchandise that is not returned, resulting in a decrease in the customer s accounts payable Merchandise is damaged but still usable reduced price Debit memorandum form prepared by the customer showing the price deduction taken by the customer for returns and allowances (source document objective evidence) Customer records the amount as a debit (deduction) to the vendor account (Accounts Payable) to show decrease in amount owed Purchase Returns and Allowances decreases amount of purchases Contra account to Purchases normal credit balance LESSON 9-1
DEBIT MEMORANDUM FOR PURCHASES RETURNS AND ALLOWANCES page 256 30 LESSON 9-4
JOURNALIZING PURCHASES RETURNS AND ALLOWANCES page 257 31 November 28. Returned merchandise to Crown Distributing, $252.00, covering Purchase Invoice No. 80. Debit Memorandum No. 78. 1 2 6 4 3 5 7 1. Write the date. 2. Write the account title and vendor name. 3. Place a diagonal line in the Post. Ref. column. 4. Write debit memorandum number. 5. Write the amount. 6. Write Purchases Returns and Allow. 7. Write the amount. LESSON 9-4
32 TERMS REVIEW page 258 purchases return purchases allowance debit memorandum LESSON 9-4