Ch. 15: Accounting for Purchases and Cash Payments Accounting II Ms. Alltucker

Learning Objectives Explain the procedures for processing a purchase on account Describe the accounts used in the purchasing process Analyze transactions relating to the purchase of merchandise Record a variety of purchases and cash payment transactions Post to the accounts payable subsidiary ledger Define the accounting terms in this chapter

Section 1: Purchasing Items Needed by a Business What you will learn: About the paperwork involved in the purchasing process The purpose of the Purchase discount account The purpose of the Purchases account and its rules of debits and credits Why it’s important: It is essential that businesses establish controls and procedures for handling the purchase of assets in a systematic manner because the purchasing process results in a large outflow of cash

The Purchasing Process The purchases of supplies, equipment, and merchandise is divided into four stages: Requesting needed items Ordering from a supplier Verifying items received Processing the supplier’s invoice

Purchasing Process Requesting Needed Items Purchase requisition written request that a certain item or items be purchased Pre-numbered, multi-copied form Approved by the manager Original copy sent to the purchasing department Person making a request keeps a copy Look on page 389 in your textbook for an example

Purchasing Process Ordering from a Supplier Purchase order written offer to a supplier to buy certain items Most info comes from the purchase requisition Contains: quantity, description, unit price, total cost, supplier’s name and address, date needed, shipping method Pre-numbered, multi-copied form Original copy sent to supplier One copy  department requesting the item One copy kept in purchasing department Look on page 389 in your textbook for an example

Purchasing Process Verifying Items Received Packing slip form that lists the items included in the shipment When received, it is unpacked and checked to see if all items were delivered If not all items are present, a note is given on the packing slip and given to the accounting department

Purchasing Process Processing the Supplier’s Invoice Suppliers prepare a bill—invoice Credit terms, quantity, description, unit price, total cost, order number, and delivery method Sent directly to accounting department—stamped to indicate it was received Accountant verifies the invoice Processing stamp placed on the invoice to enter: date to be paid, discount amount (if any), amount to be paid, and check number Look on page 391 in your textbook for an example

Purchases Discounts Purchases discount Suppliers frequently offer charge customers a cash discount for early payment Purchase discount and a cash discount are calculated in the same way

Purchases Discount 1. Merchandise Discount $2,300 X .02 = $46 Purchased X Rate = Discount Example $2,300 X .02 = $46 2. Amount Paid Within Invoice Discount Discount Amount – Amount = Period $2,300 – $46 = $2,254

Purchases Discount Discount Period 2/10, n/30 If you pay within 10 days of purchase date, you will receive a 2% discount If you do not pay within 10 days of purchase date, the full amount is due in 30 days from purchase date

Purchase Account Temporary account Classified as a cost of merchandise account Actual cost to the business of the merchandise sold to customers Follows the rules of debits and credits as expense accounts Debit + Increase Side Normal Balance Credit – Decrease Side Purchases

Thinking Critically 1. Explain the steps in the purchasing process from the request for merchandise to the payment of the invoice. 2. When a business purchases merchandise for resale, what accounts are affected?