Special Journals: Purchases and Cash Payments Chapter 10 2

Calculating net purchases. Learning Objective 1 Calculating net purchases.

Learning Unit 10-1 (Buyer’s View of a Merchandise Company) Purchases = Amount of units purchased times the cost of each unit It is the amount that is debited to the purchases account in the purchases journal entry. Normal balance is a debit.

Learning Unit 10-1 (Buyer’s View of a Merchandise Company) Accounts Affected Category Rules Purchases Cost Dr. 4,000 Accounts Payable, Liability Cr. 4,000 Mattel July 6 Purchases 4,000 Accounts Payable, Mattel 4,000 To record purchases on account

Learning Unit 10-1 (Buyer’s View of a Merchandise Company) Purchases Returns and Allowances account Debit memo is issued for returned, damaged, or defective purchased merchandise. Normal balance is a credit. 5

Learning Unit 10-1 (Buyer’s View of a Merchandise Company) Accounts Affected Category Rules Accounts Payable Liability Dr. 500 Purchases Returns Contra- Cr. 500 and Allowances Cost July 9 Accounts Payable, Mattel 500 Purchases Returns and Allowances 500 Received debit memorandum

Learning Unit 10-1 (Buyer’s View of a Merchandise Company) Purchases discount = A percent decrease in the amount paid to a supplier All payments should be timely to take advantage of this discount. Purchases $4,000 – Purchases Returns and Allowances 500 – Purchases Discounts 70 = Net Purchases $3,430 6

Learning Unit 10-1 (Buyer’s View of a Merchandise Company) F.O.B. destination: The seller is responsible for freight. F.O.B. shipping point: The buyer is responsible for freight.

Journalizing transactions Learning Objective 2 Journalizing transactions in a purchases journal.

Learning Unit 10-2 (Steps Taken in Purchasing Merchandise) Verifying Numbers Receiving Goods Purchase Invoice Purchase Order Purchase Requisition

Learning Unit 10-2 (Steps Taken in Purchasing Merchandise) Sales invoice for the seller = Purchase invoice for the buyer Purchases Journal Accounts Payable Subsidiary Ledger

Posting from a purchases journal to the accounts payable subsidiary Learning Objective 3 Posting from a purchases journal to the accounts payable subsidiary ledger and the general ledger.

Learning Unit 10-2 (Steps Taken in Purchasing Merchandise) Purchases are posted in total to the Purchases account and the Accounts Payable account. They are also recorded as credits to individual creditors in the Accounts Payable account.

Learning Unit 10-2 (Steps Taken in Purchasing Merchandise) Purchases Journal Accounts Date Account Payable Purchases 200x Credited Terms Credit Debit April 3 XYZ Co. 2/10, n/60 5,000 5,000

Learning Unit 10-2 (Steps Taken in Purchasing Merchandise) Special Journals Purchases Journal Purchases of inventory for resale on account Cash Payments Journal All payments of cash (cash disbursements journal)

Learning Unit 10-2 (Steps Taken in Purchasing Merchandise) Purchase transaction amounts are posted to each supplier in the purchases journal and accounts payable subsidiary ledgers. The purchases journal records all purchases on account (credit purchases only).

Learning Unit 10-2 (Steps Taken in Purchasing Merchandise) Each credit purchase transaction is posted to each accounts payable supplier as a credit. The totals of the Accounts Payable, and Purchases columns are posted to each of these general ledger accounts. Cash discount terms are listed.

Preparing, journalizing, Learning Objective 4 Preparing, journalizing, recording, and posting a debit memorandum.

Learning Unit 10-2 (Steps Taken in Purchasing Merchandise) What is a debit memorandum? It is a record of purchases returns and allowances showing amounts that were deducted from the balance owed to creditors. It relates to a contra-expense account with a normal credit balance.

Learning Unit 10-2 (Steps Taken in Purchasing Merchandise) A debit memorandum for $200 was issued. Accounts Affected Category Rules Accounts Payable Liability Dr. 200 Purchases Returns Contra- Cr. 200 and Allowances Cost April 9 Accounts Payable, Thorpe Company 200 Purchases Returns and Allowances 200 Debit memo #1

Journalizing and posting from a cash payments journal. Learning Objective 5 Journalizing and posting from a cash payments journal.

Learning Unit 10-3 (The Cash Payments Journal) The cash payments journal records all payments made in cash. Accounts Payable, Purchases Discount, and Cash column totals are posted to the general ledger. Sundry is a miscellaneous accounts column that provides flexibility for reporting transactions.

Learning Unit 10-3 (The Cash Payments Journal) Debit Columns = Credit Columns Sundry + Accounts Payable = Purchases Discount + Cash $2,400 + $4,600 $6 + $6,994 = $7,000 =

Learning Objective 6 Preparing a schedule of accounts payable.

Learning Unit 10-3 (The Cash Payments Journal) Accounts Payable is the controlling account in the general ledger. At the end of the month, the total owed in Accounts Payable should equal the sum owed to the individual creditors that are listed on the schedule of accounts payable.

End of Chapter 10