Chapter 8 Accounting for Purchases and Accounts Payable

Source Documents Purchases Requisition Purchase Order Lists items needed Internal document Purchase Order External Sent to Supplier

Source Documents Purchases Requisition Purchase Order Lists items needed Internal document Purchase Order External Sent to Supplier

Source Documents Receiving Report Invoice Shows items received From supplier showing what was shipped Compared with the receiving report

Purchases Journal Used for merchandise purchased on credit More efficient than General Journal Fewer postings to general ledger Speed up recording time for transactions Purchase Journal Format (3-Column) Accounts Payable - Credit Purchases - Debit Freight-in Debit

Posting Process Each transaction is posted to a supplier account at the time of the transaction. Posted to the credit side on the account Summary postings are made monthly. Account Payable - Credit Purchases - Debit Freight-in - Debit

Pop Quiz #1 - True or False? A purchase requisition states what the buyer wishes to purchase. The invoice is the bill that comes after goods are shipped or received. True

Pop Quiz #1- True or False? Freight-In is a selling expense for the business that purchases the item shipped. A purchases journal is used to record all purchases that a business makes. Purchases is a balance sheet account. False

Accounts Payable Ledger Subsidiary Ledger - Separate/Subordinate to General Ledger Lists the name of all creditors (suppliers) Balances are presumed to be credit balances Circled balances can be used to indicate debit Postings to this ledger are made daily from Purchases Journal General Journal

Purchases Returns & Allowances Contra expense account Normal credit balance Control Account - Purchases Returns: Merchandise returned for credit Allowances: Price reduction for inferior merchandise

General Journal Entry When a company returns or receives an allowance for merchandise the following entry is made: Accounts Payable / Supplier xx Purchases Ret. & Allow xx Credit Memo #xx Three postings are required for this entry.

Schedule of Accounts Payable Lists amounts (balances) owed to creditors. Suppliers are listed in alphabetical order. Total is compared to the balance in Accounts Payable in the General Ledger. Accounts Payable (General Ledger) is the control account and is the link between the two ledgers.

Cost of Purchases Purchases Freight In Purchases Returns & Allowances = Delivered Cost of Purchases

Calculating Purchases. . . A truckload of 20 washing machines were purchased at a cost of $100 per machine. The cost of the freight to deliver these machines was $100. One of the washing machines was returned to the supplier because it was defective. What is the cost of this purchase?

Pop Quiz #2 - True or False? A purchases discount is given to encourage prompt payment. Good internal control of purchasing means giving salespeople the authority to order merchandise.

Pop Quiz #2 - True or False? The total from the purchases journal on accounts payable is posted to inventory. Freight In must be added to purchase cost to determine true cost of purchases. False True