1. Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Chapter 12 Merchandise Purchases and Accounts Payable

2. 12-2 Learning Objective 1 Analyze and record transactions for merchandise purchases. Requesting Department Purchasing Department Receiving Department Vendor When a department needs products to sell, the department manager will prepare and sign a purchase requisition listing the merchandise needed and send it to the purchasing department. The purchasing department then selects a vendor that can supply the goods and places a purchase order. A purchase order authorizes a vendor to ship ordered merchandise at the stated price and credit terms. Someone with authority to approve the purchases signs the purchase order and sends it to the vendor. The vendor ships the ordered merchandise to the buyer and sends an invoice that lists several key pieces of information. When the shipment arrives at the buyers business, the receiving department counts the goods and checks them for damage and agreement with the purchase order. The receiving department prepares a receiving report which is used within the company to notify the appropriate persons that ordered goods have been received and to describe the quantities and condition of the goods. LO1

3. 12-3 Accounting for Purchases and Freight Charges Z-Mart purchased $1,200 of merchandise on account and incurred $96 of freight charges. LO1

4. 12-4 Trade Discounts Used by manufacturers and wholesalers to offer better prices for greater quantities purchased. Used by manufacturers and wholesalers to offer better prices for greater quantities purchased. Example Matrix, Inc. offers a 30% trade discount on orders of 1,000 units or more of its popular product Racer. Each Racer has a list price of $5.25. Example Matrix, Inc. offers a 30% trade discount on orders of 1,000 units or more of its popular product Racer. Each Racer has a list price of $5.25. LO1

5. 12-5 Purchase Discounts On May 7, Jason, Inc. purchased $27,000 of merchandise inventory on account, credit terms are 2/10, n/30. LO1

6. 12-6 Purchase Discounts On May 15, Jason, Inc. paid the amount due on the purchase of May 7. *$27,000 × 2% = $540 discount Credit Terms Time Amount Due Discount Period Due: Invoice price minus discount Credit Period Due: Full Invoice Price Date of Invoice LO1

7. 12-7 Purchase Returns and Allowances On May 9, Matrix, Inc. purchased $20,000 of merchandise inventory on account, credit terms are 2/10, n/30. On May 10, Matrix, Inc. returned $500 of defective merchandise to the supplier. LO1

8. 12-8 Purchase Returns and Allowances On May 18, Matrix, Inc. paid the amount owed for the purchase of May 9. LO1

9. 12-9 Transportation Costs and Ownership Transfer On May 12, Jason, Inc. purchased $8,000 of merchandise inventory for cash and also paid $100 transportation costs. FOB destination (seller pays) Merchandise FOB shipping point (buyer pays) SellerBuyer LO1

10. 12-10 Cost of Goods Sold and Gross Profit Sales discounts and returns and allowances are Contra Revenue accounts. Before we can determine the net income for a merchandising business, we must compute cost of goods sold and gross profit. LO1

11. 12-11 Learning Objective 2 Journalize and post transactions using a purchases journal. LO2

12. 12-12 Learning Objective 2 Journalize and post transactions using a purchases journal. Page 2 A purchases journal is typically used to record all credit purchases. Cash purchases are typically recorded in the cash disbursements journal or general journal. On this slide we illustrate the purchases journal for Z-Mart for the month of February. LO2

13. 12-13 Purchases Journal Page 2 Once the journal entries are entered in the purchases journal, totals are posted to the general ledger accounts. LO2

14. 12-14 Posting to Accounts Payable Subsidiary Journal Page 2 Accounts Payable Subsidiary Ledgers Once the purchases journal is posted to the general ledger, the ledger accounts are up to date. To keep accurate information on the amounts, timing, and credit terms for the money owed to creditors, an accounts payable subsidiary ledger is often kept. LO2

15. 12-15 Accounts Payable Subsidiary Ledger Learning Objective 3 Prepare and prove the accuracy of an accounts payable subsidiary ledger. We prove the subsidiary ledger by preparing a schedule of accounts payable, which is a list of accounts from the accounts payable subsidiary ledger with their balances. LO3

16. 12-16 Learning Objective 4 Journalize and post transactions using a cash disbursements journal. Page 2 The cash disbursements journal is typically used to record all cash payments. Once the journal entries are entered in the cash disbursements journal, totals are posted to the general ledger accounts. Much like the posting process we reviewed for the purchases journal earlier in this chapter, the numbers under the totals represent the account numbers of the accounts to where the amounts are posted LO4

17. 12-17 End of Chapter 12