Journalizing Purchases and Cash Payments Chapter 10 Journalizing Purchases and Cash Payments

Partnership A business in which two or more persons combine their assets and skills.

Partner Each member of a partnership.

Merchandising Business A business that purchases and sells goods.

Retail Merchandising Business A merchandising business that sells to those who use or consume the goods.

Wholesale Merchandising Business A business that buys and resells merchandise to retail merchandising businesses.

Merchandise Goods that a merchandising business purchase to sell.

Using Expanded Journals Some partnerships use expanded journals to save time and space when journalizing transactions. Expanded journals are commonly used by small merchandising businesses in which only one person records transactions.

Cost of Merchandise The price a business pays for goods it purchases to sell. The selling price of merchandise must be greater than the cost of merchandise for a business to make a profit.

Markup The amount added to the cost of merchandise to establish the selling price. Revenue earned from the sale of merchandise includes both the cost of merchandise and markup.

Vendor A business from which merchandise is purchased or supplies or other assets are bought. The account used for recording the cost of merchandise purchased to sell is titled Purchases. Purchases Debit side Normal balance Increase Credit Side Decreases *The cost account, Purchases, is a temporary account.

Purchase on Account A transaction in which the merchandise purchased is to be paid for later. The liability account that summarizes the amounts owed to all vendors is titled Accounts Payable. Accounts Payable Debit side Decrease Credit side Normal balance Increase

Invoice A form describing the goods sold, the quantity, and the price. An invoice used as a source document for recording a purchase on account transaction is called a purchase invoice.

Terms of Sale An agreement between a buyer and a seller about payment for merchandise.

Correcting Entry A journal entry made to correct an error in the ledger. If an accounting error is discovered, a memorandum is prepared describing the correction to be made. You must also journalize the correcting entry.