1. LO4 Describe accounting procedures used in ordering merchandise. LO5 Discuss the purpose of a special journal. LO6 Journalize purchases of merchandise on account using a purchases journal. Learning Objectives

2.  A list of assets, usually containing the value of individual items, is called an inventory.  The goods a business has on hand for sale to customers is called merchandise inventory.  Two methods are used to determine the value of inventory: ◦ Perpetual inventory method ◦ Periodic inventory method SLIDE 2 LO4 Lesson 9-2

3.  An inventory determined by keeping a continuous record of increases, decreases, and the balance on hand of each item of merchandise is called a perpetual inventory.  Purchases of merchandise are accounted for directly to the Merchandise Inventory account ◦ Typically use computerized accounting systems ◦ Detailed record of units purchased and sold ◦ Record of the current quantity on hand SLIDE 3 LO4 Lesson 9-2

4.  A merchandise inventory evaluated at the end of a fiscal period is called a periodic inventory.  When a periodic inventory is conducted by counting, weighing, or measuring items of merchandise on hand, it is called a physical inventory.  Depending on the volume of sales, periodic inventory might be conducted at eh end of a fiscal year, every quarter or every month.  Easier to maintain than perpetual method ◦ Does not require records of the quantity and cost of individual goods SLIDE 4 LO4 Lesson 9-2

5.  The amount a business pays for goods it purchases to sell is called cost of merchandise.  Recorded into the Purchases account ◦ Increased by a debit, decreased by a credit  CGS section in the Income Statement ◦ Accounts in the CGS section include all costs necessary to make an item of merchandise available for sale  Purchase price + any related costs or discount  EX: Freight paid to receive an item SLIDE 5 LO4 Lesson 9-2

6.  Purchases vs. Supplies  Purchase – the acquisition of merchandise  Buy or Bought – the acquisition of supplies  Purchased Merchandise = Purchases is debited SLIDE 6 LO4 Lesson 9-2 Debit Increases Credit Decreases Purchases

7.  A form requesting the purchase of merchandise is called a requisition. ◦ Includes: description of merchandise to be ordered, quantity and required delivery date  A form requesting that a vendor sell merchandise to a business is called a purchase order. ◦ Lists the number, description, quantity, and unit price of items ordered. ◦ Used to approve the sale and process the order SLIDE 7 LO4 Lesson 9-2

8. SLIDE 8 Ordering Merchandise LO4 Lesson 9-2

9.  A journal used to record only one kind of transaction is called a special journal. ◦ Businesses having many daily transactions could not efficiently operate with a single journal  Businesses typically use five journals: ◦ Purchases journal—for all purchases of merchandise on account ◦ Cash payments journal—for all cash payments ◦ Sales journal—for all sales of merchandise on account ◦ Cash receipts journal—for all cash receipts ◦ General journal—for all other transactions SLIDE 9 LO5 Lesson 9-2

10.  A transaction in which the items purchased are to be paid for later is called a purchase on account.  A purchases journal is a special journal used to record only purchases of merchandise on account. ◦ Each purchase of merchandise on account transaction is recorded on one line of the purchases journal  A journal amount column headed with an account title is called a special amount column. ◦ Used for frequently occurring transactions. ◦ Eliminates writing general ledger account titles in the Account Credited column SLIDE 10 LO6 Lesson 9-2

11. SLIDE 11 Purchases Journal LO6 Lesson 9-2

12.  An invoice used as a source document for recording a purchase on account transaction is called a purchase invoice. ◦ Lists quantity, description and price of each item and shows the total amount in the purchase.  An agreement between a buyer and a seller about payment for merchandise is called the terms of sale. ◦ n/30: net amount of the invoice is due in 30 days from the vendor’s invoice date  The date by which an invoice must be paid is called the due date. ◦ Payments made late usually incur a late fee SLIDE 12 LO6 Lesson 9-2

13. SLIDE 13 Purchase Invoice 1. 1.Record the initials of the employee processing the invoice, date received, and the purchase invoice number in the stamp. LO6 2. 2.Place a check mark by each of the amounts in the Total column to show that the items have been received and that amounts have been checked and are correct. 3. 3.Review the vendor’s terms and the payment due date. 1 1 2 2 3 3 Lesson 9-2

14. SLIDE 14 Purchasing Merchandise on Account November 6. Purchased merchandise on account from Wynn Lighting, $1,082.50. Purchase Invoice No. 525. LO6 1. 1.Write the date in the Date column. 4. 4.Write the amount of the invoice in the special amount column. 2. 2.Write the vendor account title in the Account Credited column. 3. 3.Write the purchase invoice number in the Purch. No. column. Purchases 1,082.50 Accounts Payable 1,082.50 1 1 Date 2 2 Vendor Name 3 3 Purchase Invoice Number 4 4 Amount Lesson 9-2

15. SLIDE 15 Lesson 9-2 Oct. 2. Purchased merchandise on account from Pacific Supply, $3,252.00. P162.

16. SLIDE 16 Lesson 9-2 Oct. 7. Purchased merchandise on account from Coastal Company, $532.00. P163.

17. SLIDE 17 Lesson 9-2 Oct. 11. Purchased merchandise on account from Yeatman Designs, $866.00. P164.

18. 1.What is the difference between a periodic inventory system and a perpetual inventory system? SLIDE 18 ANSWER With a periodic inventory system, the value of the inventory is determined by a physical count. With a perpetual inventory system, the value of the inventory on hand is determined by a continuous record of increases and decreases. Lesson 9-2

19. 2. When the perpetual inventory system is used, in what account are purchases recorded? In what account are purchases recorded when the periodic inventory system is used? SLIDE 19 ANSWER In a perpetual inventory system, purchases are recorded in the Merchandise Inventory account. In a periodic inventory system, purchases are recorded in the Purchases account. Lesson 9-2

20. 3.Identify the four special journals typically used by a business. SLIDE 20 ANSWER Purchases journal, cash payments journal, sales journal, cash receipts journal Lesson 9-2

21. 4.How are special amount columns used in a journal? SLIDE 21 ANSWER Special amount columns are used for frequently occurring transactions. Lesson 9-2

22. 5.Why are there two account titles in the amount column of the purchases journal? SLIDE 22 ANSWER All transactions for purchasing merchandise on account involve a debit to Purchases and a credit to Accounts Payable. Lesson 9-2

23. 6.What is the advantage of having special amount columns in a journal? SLIDE 23 ANSWER Using special amount columns eliminates writing general ledger account titles in the Account Title column, which saves time and helps to reduce mistakes. Lesson 9-2

24. 7.What information is contained on a purchase invoice? SLIDE 24 ANSWER A purchase invoice lists the vendor name and address; the date; the quantity, description, and price of each item; and the total amount of the purchase. Lesson 9-2