CHAPTER TWELVE INTRODUCTION TO MERCHANDISING BUSINESSES: PURCHASES

McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved Apply the procedure for checking the accuracy of invoices. 2.Use an unpaid invoice file. 3.Explain the difference between FOB shipping point and FOB destination. 4.Demonstrate the procedure for handling purchases returns and allowances. 5.Compute purchases discounts. INTRODUCTION TO MERCHANDISING BUSINESSES: PURCHASES Objectives:

McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved Purchasing Merchandise Businesses that purchase merchandise must have orderly procedures for checking the accuracy of invoices and for making prompt payments.

McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved Transportation Charges When a business purchases merchandise, it may be required to pay transportation charges from the supplier’s warehouse. These charges are an added cost of the merchandise.

McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved Purchase Returns and Allowances When a business returns goods or receives an allowance, there is a decrease in the cost of its merchandise purchases.

McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved Purchase Discounts Cash discounts are called sales discounts by the seller and purchases discounts by the buyer. The discounts apply to the cost of merchandise only.

McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved Accounting Terminology Extensions FOB destination FOB shipping point Free on board Purchase invoice Purchases discounts Purchases returns and allowances. Sales discounts Sales invoices Tickler file Unpaid invoice file

McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved Chapter Summary A purchase invoice is a bill that a buyer receives for a purchase of merchandise. Invoices must be paid within the discount period to obtain the cash discount.

McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved Chapter Summary (continued) An unpaid invoice file is used to keep track of due dates. FOB shipping point means that the purchaser must pay the transportation charges. FOB destination means that the seller must pay the transportation charges.

McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved Chapter Summary (continued) Purchases returns and allowances decrease the cost of merchandise purchased. A credit memorandum shows that the supplier will reduce the purchaser’s account balance by the amount of the return or allowance.

McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved Chapter Summary (continued) Purchases discounts apply only to the cost of merchandise. They are not allowed on transportation charges, sales tax, or returns and allowances.

McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved Purchases returns and allowances increase the cost of merchandise purchased. 2. Invoices must be paid within the discount period to obtain the cash discount. 3. A purchase invoice is a bill that a seller receives for a purchase of merchandise. Topic Quiz Answer the following true/false questions: TRUE FALSE

McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved Investigating on the Internet Sources of information about purchases can be accessed at various corporate websites. As a research assignment, access an interesting website and report those sources of information that might concern purchases of merchandise.

McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved (Return to Topic Quiz) 1. Purchases returns and allowances increase the cost of merchandise purchased. FALSE Purchases returns and allowances decrease the cost of merchandise purchased.

McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved (Return to Topic Quiz) 3. A purchase invoice is a bill that a seller receives for a purchase of merchandise. FALSE A purchase invoice is a bill that a buyer receives for a purchase of merchandise.