Recording Purchases and Cash Payments Using Special Journals Chapter 18 Recording Purchases and Cash Payments Using Special Journals

Think… Up until now, we have only been dealing with a General Journal (with special amount columns). Our journal went from having 5 columns to 11 columns. Why did we go from 5 to 11 columns? In this chapter we will begin using 2 new journals (Purchases and Cash Payments) along with our General Journal. Why do you think we will be using an additional 2 new journals?

After this chapter, you will be able to… Defining accounting terms related to purchases and cash payments Identify accounting concepts and practices related to purchases and cash payments Record purchases on account and post using a purchases journal Record expenses and purchases using a cash payments journal Record petty cash and post using a cash payments journal Record transactions and post using a general journal.

18-1 Recording Purchases on Account Using a Purchases Journal

New Business- Winning Edge, Inc. Winning Edge is a CORPORATION Same legal rights as a person Own property, incur liabilities, enter into contracts Owned by many persons Must receive state or federal approval Sell ownership of itself Share of Stock- Each unit of ownership Capital Stock- Total shares of ownership What do you think are some benefits of being formed as a corporation?

Winning Edge Sells sporting equipment School Districts, Colleges, and Businesses What’s different about selling to Schools and Colleges? Main difference between Corporations and Proprietorships/Partnerships are their Capital Accts: Proprietorships and Partnerships have one Capital and one Drawing Account per owner Corporations have separate Capital accounts for the stock issued and earnings kept in the business

Winning Edge Larger businesses having many daily transactions may use many different journals. A journal used to record only one kind of transaction is called a special journal. What are the benefits of having special journals? Winning Edge uses 4 special journals: Purchases Journal Cash Payments Journal Sales Journal Cash Receipts Journal

Transactions all recorded on one line PURCHASES JOURNAL The Purchases Journal is used to record ONLY purchases of merchandise on account Transactions all recorded on one line Always a Dr to Purchases and a Cr to Accts Payable Source Document is always a Purchase No. Account Title becomes Account Credited Lesson 18-1, page 455

JOURNALIZING PURCHASES ON ACCOUNT March 2. Purchased merchandise on account from Pro Golf Company, $7,254.00. Purchase Invoice No. 179. Accounts Affected Purchases Accounts Payable Classification Cost Liability Change Increased Entered Debit side Credit side Pro Golf Company Purchases GENERAL LEDGER ACCOUNTS PAYABLE LEDGER Accounts Payable normal balance normal balance  7,254.00  7,254.00 normal balance  7,254.00 Lesson 18-1, page 456

JOURNALIZING PURCHASES ON ACCOUNT 2 1 4 3 1. Date 2. Vendor Name 3. Purchase Invoice Number 4. Purchase Invoice Amount No abbreviation is needed for the source document… Why? Lesson 18-1, page 456

POSTING FROM A PURCHASES JOURNAL TO AN ACCOUNTS PAYABLE LEDGER 2 1 3 5 4 1. Date 4. Balance 2. Journal Page Number 5. Vendor Number 3. Credit Lesson 18-1, page 457

POSTING FROM A PURCHASES JOURNAL TO A GENERAL LEDGER 1. Rule a single line. 2. Write the date. 1 3. Write word Total. 2 4. Add the amount column, write total, rule double lines. 3 4 5 6 5. Post the amount total to the Debit column of Purchases. 6. Post the amount total to the Credit column of Accounts Payable. Lesson 18-1, page 458

TERMS REVIEW corporation share of stock capital stock special journal purchases journal Lesson 18-1, page 459

Audit Your Understanding (Page 459) What are some business transactions a corporation can conduct in its own name? What is the principal difference between the accounting records of a corporation and those of a proprietorship/partnership? What accounts are affected, and how, when the total amount of the purchases journal is posted?