Purchase journals and cash payment journals Chapter 9 Accounting 1

Do NOW: Read about Office Max (p. 233) Be prepared to discuss answers to questions Read about corporations (p. 234)

Hobby Shack, INC. Owner – Janice Kellogg Sells a wide variety of art and hobby supplies to individuals, schools, and businesses Corporation Has stockholders who have invested Exists independent of its owners Will continue beyond Janice’s lifetime

Hobby Shack, INC. A merchandising business Merchandise – goods that a business purchases to sell Merchandising business – a business that purchases and sells goods Retail merchandising business – buys and sells merchandise to those who consume the goods Wholesale merchandising business – buys and resells merchandise to retail merchandising businesses

USING SPECIAL JOURNALS There are many kinds of journals that can be used and the choice depends on the needs of the business. The greater a business’s daily transactions, the more “special journals” that may be used Special Journal – a journal used to record only one kind of transaction

HOBBY SHACK’s SPECIAL JOURNALS Hobby Shack uses five (5) special journals Purchase Journals All purchases of merchandise on account Cash Payment Journal All cash payments Sales Journal All sales of merchandise on account Cash Receipts Journal All cash receipts General Journal All other transactions

PURCHASING MERCHANDISE Vendor – a business from which merchandise is purchased or supplies or other assets are bought Cost of merchandise – the price a business pays for goods it purchases to sell Selling price must be greater than cost of merchandise for business to make profit Markup: amount added to cost of merchandise to establish selling price Only markup increases capital

Purchasing merchandise Costs of merchandise are kept separately Chart of Accounts, p. 231 5000 accounts “Purchases” – A temporary account used for purchasing merchandise ONLY Debit increases, Credit decreases (p. 236) Normal debit balance because it takes from capital Accounting Concept Historical Price Applied when actual amount paid for merchandise or other items bought is recorded

SOURCE DOCUMENT: Purchase INVOICE Pay cash for merchandise OR Purchase on account – a transaction in which the merchandise purchased is to be paid for later Accounts payable account (p. 236) Purchases journal – special journal used to record only purchases of merchandise on account Amount column has two account titles in heading: Purchases Dr. Accts. Pay. Cr. Special amount column – journal amount column headed with account title ; used for frequently occurring trans. Eliminates writing general ledger account titles in Account Title Column and saves time

SOURCE DOCUMENT: Purchase INVOICE All purchases on account transactions are recorded in purchases journal If purchase made for cash, transaction NOT recorded in purchases journal Every purchase on account will have a purchase invoice This is a form describing goods sold, quantity, and price and is used as a source document for recording a purchase on account transaction (Objective Evidence) Review p. 238 Steps to “check” a purchase invoice: Stamp date received Place check mark by each amount Initial total Review terms of sale: agreement between buyer and seller about pmt.

PURCHASES DR. ACCTS. PAY. CR. The purchase journal PURCHASES JOURNAL PAGE   DATE ACCOUNT CREDITED PURCH. NO. POST. REF. PURCHASES DR. ACCTS. PAY. CR. 1 2 3 4 5

Journalizing IN the purchase journal All transactions recorded in purchase journal are a debit of purchases and a credit of accounts payable Must always write the vendor name in the account title column Always total and rule at the end of the month Review p. 239 and 240

PURCHASING MERCHANDISE ON ACCOUNT (p. 239) November 2. Purchased merchandise on account from Crown Distributing, $2,039.00. Purchase Invoice No. 83. PURCHASES JOURNAL PAGE   DATE ACCOUNT CREDITED PURCH. NO. POST. REF. PURCHASES DR. ACCTS. PAY. CR. 2013  1 Nov  2  Crown Distributing 83 2039.00 3 4 5 At the end of the month, the Purchases Journal is totaled and ruled.

PRACTICE 9-1 WT 9-1 OYO 9-1 App 9-1