Corporate Accounting.

Corporate Accounting

Accounting for a Merchandising Business Organized as a Corporation
What is a Corporation? An organization with the legal rights of a person and which many persons own. How can you become a Corporation? File proper paperwork and receive approval from a federal or state agency. Why do people form Corporations? Need amounts of capital/money that cannot be easily provided by a proprietorship. Capital/money comes from the sale of stock. LESSON 9-1

Who owns the Corporation? Shareholders – an owner of one share or more of stock. Capital Stock – total shares of ownership in a corporation. What can Corporations do? Own property Enter into contracts in its own name Sell ownership in itself (through stock) Acquire Liabilities LESSON 9-1

Why Not Just Stick with Proprietorship or even a Partnership? Capital/Money Tax Reasons Liability Reasons Sole Proprietorship Owner’s private assets are taken to pay back business debts Owner is the only one that contributes money Partnership Have to share responsibilities and profits with other people. Can be held legally liable for errors of partners. LESSON 9-1

Three Different Types of Corporations: S Corp C Corp LLC – Limited Liability Corp. LESSON 9-1

S Corp Fewer than 100 Shareholders Shareholders must be U.S. Citizens or Residents a Calendar Year (Jan 1 – Dec 31) Shareholders pay taxes on all profits, whether they are distributed or not. Limited Legal Liability – liable for debts based on amount of shareholder investment. Company must be domestic and located within any state of the U.S. Can only have one class of stock. No Tax at the Corporate Level. (Avoid double taxation) LESSON 9-1

So Why Would Someone Choose S Corp? Avoid double taxation. Profits will not be taxed at corporate level and individual level. When the excess profits that are considered to be above the reasonable salary for a President or CEO are removed from company. LESSON 9-1

C Corp Most major corporations are C Corp Unlimited number of shareholders Shareholders can reside anywhere in the world. Can be individual or businesses. Can have different classes of stock. Double taxation – profits are taxed at corporate and individual level. Profits can be split between the owners and the corporation (can choose to reinvest profits back into the business) Must elect a Board of Directors to make decisions and oversee policies. LESSON 9-1

C Corp Is required to report financial operations to state attorney general. Limited Liability – owners/shareholders cannot be sued individually for corporate wrongdoings. Cannot be held liable for company debts. Will not be shut down when a board member dies, or a shareholder decides to sell it’s stock to someone else. LESSON 9-1

YOU OWN SHARES OF STOCK IN BP. BP Oil Spill Happens Could you be sued individually by business owners on the gulf coast who could not operate because of all of the oil that was spilling into the ocean? BP as a corporation will be sued. Results in a loss of …….profits. Profits do not make it’s way to you the shareholder (you do not receive dividends) So, did you end up paying??? LESSON 9-1

LLC – Limited Liability Corporation Combines pieces of proprietorship and corporation. It’s not a separate entity (meaning owner and business are separate) Is not public, cannot sell shares of stock or issue stock options to employees. The company does not pay taxes – it’s done by the owners on their personal income tax returns. Cannot be held liable for company losses, debts, or business credit. Personal assets cannot be taken to recover debt. LESSON 9-1

LLC – Limited Liability Corporation Owners are protected from personal liabilities (cannot be sued personally if someone injured themselves) Can select any form of profit distribution (major owners do not have to get the largest shares of profit) They are not legally required to hold meetings. Company can be dissolved when a member dies or company faces bankruptcy. LESSON 9-1

LESSON 9-1 Journalizing Purchases Using a Purchases Journal
9/5/2018 LESSON 9-1 Journalizing Purchases Using a Purchases Journal

TERMS REVIEW Merchandise – Goods that a business purchases to sell.
Merchandising Business – A business that purchases and sells goods. Retail Merchandising Business – A merchandising business that sells to those who consume or use goods. Examples: Target, Walmart, Giant Eagle Wholesale Merchandising Business – a business that buys and resells merchandise to retail merchandising businesses. LESSON 9-1

TERMS REVIEW Examples: GFS, Sysco, Pepsi Bottling Company A business with many daily transactions may choose to use a separate journal for each kind of transaction compared to a business that does not have many daily transactions and only records everything in one journal Special Journal – a journal used to record only one kind of transaction. Purchases Journal – Used for all purchases of merchandise, and on account. Cash Payments Journal – Used for ALL cash payments. LESSON 9-1

TERMS REVIEW Sales Journal – for all sales of merchandise on account.
Cash Receipts Journal – for ALL cash receipts. 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. Vendor – a business from which merchandise is purchased or supplies or other assets are bought. LESSON 9-1

PURCHASING MERCHANDISE
The account used for recording the COST of merchandise is called Purchases. Purchases is a COST account. No other items bought are recorded in this account. Merchandise and other items bought are recorded at the price agreed upon at the time the transaction occurs. (CONCEPT: Historical Cost) Purchases is a temporary account. LESSON 9-1

Purchasing Merchandise
Because the cost of merchandise reduces capital when the merchandise is purchased the account has a normal debit balance. LESSON 9-1

PURCHASING MERCHANDISE ON ACCOUNT
Purchase on Account – a transaction in which the merchandise purchased is to be paid for later. Increases the amount owed to a vendor. Special Amount Column – a journal amount column that has an account title at the top. Used for frequently occurring transactions. LESSON 9-1

Purchase Invoice – an invoice used as a source document for recording a purchase on account. Describes the quantity, description and price of each item and the total amount of the invoice. Terms of Sale – an agreement between a buyer and a seller about payment for merchandise. Example: 30 Days. Means that the payment is due within 30 days from the vendor’s date of the invoice. LESSON 9-1

STEPS TO REVIEWING A PURCHASE INVOICE
1 4 2 3 1. Stamp the date received and purchase invoice number. 3. Initials of the person who checked the invoice. 2. Place a check mark by each amount. 4. Review the vendor’s terms. LESSON 9-1

Levels 1, 2, 3 -- November 2. Purchased merchandise on account from Crown Distributing, $2, Purchase Invoice No. 83. 1. Write the date. 2. Write the vendor name. 3. Write the purchase invoice number. 4. Write the amount of the invoice. LESSON 9-1

Levels 1, 2, 3 -- November 2. Purchased merchandise on account from Crown Distributing, $2, Purchase Invoice No. 83. 2 1 3 4 1. Write the date. 2. Write the vendor name. 3. Write the purchase invoice number. 4. Write the amount of the invoice. LESSON 9-1

TOTALING AND RULING A PURCHASES JOURNAL
1 4 5 3 2 6 1. Rule a single line across the amount column. 4. Add the amount column. 5. Write the total. 2. Write the date. 6. Rule double lines across the amount column. 3. Write the word Total. LESSON 9-1

Journalizing Cash Payments Using a Cash Payments Journal
LESSON 9-2 Journalizing Cash Payments Using a Cash Payments Journal

What are some of the things the business pays cash for?
CASH PAYMENTS What are some of the things the business pays cash for? Prepaid Insurance Supplies Rent/Utilities/Advertising Paying for liabilities – things purchased on account. Cash Payments Journal – a special journal used to record only cash payments. LESSON 9-1

CASH PAYMENTS JOURNAL Has several Special Amount Columns.
Accounts Payable Debit Purchases Discounts Credit Cash Credit General Amount Columns – a journal amount column that is not headed with an account title. It is simply the general journal (that you are used to using) LESSON 9-1

CASH PAYMENTS JOURNAL TRANSACTIONS
Levels 1, 2, 3 -- November 2. Paid cash for advertising, $ Check No. 292. Levels 1, 2, 3 -- November 5. Paid cash for office supplies, $ Check No. 293. Notice how the general amount columns are used in this entry. Advertising Expense & Supplies are not common expenses and do not have their own special amount columns. LESSON 9-1

LESSON 9-1 9/5/2018 CASH PAYMENTS JOURNAL TRANSACTIONS Levels 1, 2, 3 -- November 2. Paid cash for advertising, $ Check No. 292. Levels 1, 2, 3 -- November 5. Paid cash for office supplies, $ Check No. 293 LESSON 9-1

Purchasing Merchandise occurs in two ways: (1) on Account (most common way) (2) with Cash Purchasing Merchandise with cash Vendors may not extend credit to all of their customers. Therefore, businesses must pay the vendor in advance with a check, before the merchandise has been shipped or delivered. LESSON 9-1

TRADE DISCOUNTS Most manufacturers and wholesalers print catalogs and maintain Internet sites that describe their products. List Price – the retail price listed in a catalog or on an internet site. Purchasing in larger quantities can sometimes result in a pricing discount. Trade Discount – a reduction in the list price granted to customers. When a trade discount is granted, the vendor’s invoice shows the actual amount charged, or the invoice amount. Only the invoice amount is used in the journal entry. No journal entry is made to show the amount of the trade discount. LESSON 9-1

TRADE DISCOUNTS How to calculate a trade discount:
The list price for 10 ceramic molds is $ The invoice price is the list price, less a 60% trade discount. Step 1: Total List Price x Discount Rate = Trade Discount. $ x = $900.00 Step 2: Total List Price – Trade Discount = Invoice Amount. $ $ = $600.00 The journal entry is recorded for the invoice amount of $600.00 LESSON 9-1

LEVEL November 7. Purchased merchandise for cash, $ Check No. 301. LESSON 9-1

LEVEL November 7. Purchased merchandise for cash, $1,500.00, less a 60% trade discount. Check No. 301. LESSON 9-1

LEVEL November 7. Purchased merchandise from ACME, Inc. for cash, $1,500.00, less a 60% trade discount. Check No. 301. LESSON 9-1

November 7. Purchased merchandise for cash, $1,500.00, less a 60% trade discount. Check No. 301. LESSON 9-1

PURCHASES DISCOUNT Cash Discount – a deduction that a vendor allows on the invoice amount to encourage prompt payment. What the vendor calls it. It’s stated as a percentage deducted from the invoice amount. Example – 2/10, n/30 is a common term of sale which is read two ten, net thirty. Two ten means that 2% of the invoice amount may be deducted if the invoice is paid within 10 days. Net 30 means that the total invoice amount must be paid within 30 days. LESSON 9-1

PURCHASES DISCOUNT Purchase Discount – a deduction that a vendor allows on the invoice amount to encourage prompt payment. What the business purchasing the merchandise calls it and how it gets recorded in the cash payments journal. Contra Account – an account that reduces a related account on a financial statement. Purchases Discount has a credit balance. (Purchases has a debit balance, so in order to reduce purchases, the discount must have a credit balance.) LESSON 9-1

CASH PAYMENTS ON ACCOUNT WITH PURCHASES DISCOUNTS
LEVEL 1 - November 8. Paid cash on account to Gulf Craft Supply, $488.04, covering Purchase Invoice No. 82 for $498.00, less 2% discount, $9.96. Check No. 302. LESSON 9-1

PURCHASE DISCOUNTS How to calculate a Cash/Purchase discount:
Paid cash on account to Gulf Craft Supply, $488.04, covering purchase invoice number 82, for $ less 2% discount, $9.96. Step 1: Purchase Invoice x Purchases Discount Rate = Purchases Amount Discount. $ x = $9.96 Step 2: Purchase Invoice – Purchases Discount = Cash Amount Amount after Discount $ $ = $488.04 LESSON 9-1

LEVEL 2 - November 8. Paid cash on account to Gulf Craft Supply, covering Purchase Invoice No. 82 for $498.00, less 2% discount, $9.96. Check No. 302. LESSON 9-1

LEVEL 3 - November 8. Paid cash on account to Gulf Craft Supply, covering Purchase Invoice No. 82 for $498.00, less 2% discount, Check No. 302. LESSON 9-1

November 8. Paid cash on account to Gulf Craft Supply, $488.04, covering Purchase Invoice No. 82 for $498.00, less 2% discount, $9.96. Check No. 302. 2 3 1 LESSON 9-1

Putting it together – ALL discounts!!
List Price: $1, Trade Discount 25% Purchases Disc. 3% Rate: Rate Using the information above, calculate the following: Trade Discount ____________________________________________ Invoice Amount ____________________________________________ Purchases Discount ________________________________________ Cash Amount after Discounts _________________________________ LESSON 9-1

CASH PAYMENTS ON ACCOUNT WITHOUT PURCHASES DISCOUNTS
Not all businesses can afford to pay early and take advantage of the cash discounts being offered. Not all vendors offer a cash discount. November 13. Paid cash on account to American Paint, $2,650.00, covering Purchase Invoice No. 77. Check No. 303. 1 2 LESSON 9-1

LESSON 9-1 Performing Additional Cash Payments Journal Operations
9/5/2018 LESSON 9-3 Performing Additional Cash Payments Journal Operations

Petty Cash Fund What is a Petty Cash Fund?
It enables a business to pay cash for small expenses without writing a check. Errors may be made when making payments from a petty cash fund and the errors cause a difference between actual cash on hand and the record of the amount that should be on hand. Cash Short – petty cash on hand amount that is less than the recorded amount. Cash Over – petty cash on hand amount that is more than the recorded amount. LESSON 9-1

Cash Short and Over New Account Title ---- Cash Short and Over
It is a Temporary account It is considered to be an Operating Expense Balance can either be a debit or credit. Most likely will be a debit balance because cash is more likely to be short than over. Cash shortages will add to the operating expense of a business and take away from profit. LESSON 9-1

PETTY CASH REPORT 1. Write the date and custodian name. 1
LESSON 9-1 9/5/2018 PETTY CASH REPORT 1. Write the date and custodian name. 1 2. Write the fund total. 3. Summarize petty cash payments. 2 3 4. Calculate and write the total payments. 4 5. Calculate and write the recorded amount on hand. 5 6 7 8 6. Write the actual amount of cash on hand. 7. Subtract the actual amount on hand from the recorded amount on hand and write the amount. 8. Write the total of the replenish amount. LESSON 9-1

REPLENISHING A PETTY CASH FUND
LESSON 9-1 9/5/2018 REPLENISHING A PETTY CASH FUND 1. Date 2. Account titles 3. Check number 4. Expense amounts 5. Cash short as a debit; cash over as a credit 6. Total cash payment 4 5 6 1 3 2 LESSON 9-1

LESSON 9-1 9/5/2018 TOTALING, PROVING, AND RULING A CASH PAYMENTS JOURNAL AT THE END OF A MONTH 1 2 3 4 5 1. Rule a single line. 2. Write the date. 3. Write the word Totals in the Account Title column. 4. Write each column total. 5. Rule double lines. LESSON 9-1

LESSON 9-1 9/5/2018 TOTALING, PROVING, AND RULING A CASH PAYMENTS JOURNAL PAGE TO CARRY TOTALS FORWARD 1 4 2 3 5 6 1. Rule a single line. 2. Write the date. 3. Write the words Carried Forward in the Account Title column. 4. Place a check mark in the Post. Ref. column. 5. Write each column total. 6. Rule double lines. LESSON 9-3

STARTING A NEW CASH PAYMENTS JOURNAL PAGE
1 2 3 4 5 1. Write the journal page number. 2. Write the date. 3. Write the words Brought Forward in the Account Title column. 4. Place a check mark in the Post. Ref. column. 5. Record the column totals. LESSON 9-1

LESSON 9-1 Journalizing Other Transactions Using a General Journal
9/5/2018 LESSON 9-4 Journalizing Other Transactions Using a General Journal

BUYING SUPPLIES ON ACCOUNT
LESSON 9-1 9/5/2018 BUYING SUPPLIES ON ACCOUNT November 6. Bought store supplies on account from Gulf Craft Supply, $ Memorandum No. 52. 2 4 3 7 1 6 5 1. Write the date. 5. Write the account title and vendor name. 2. Write the account title. 6. Place a diagonal line in the Post. Ref. column. 3. Write the memorandum number. 4. Write the debit amount. 7. Write the credit amount. LESSON 9-1

Purchases Returns and Allowances
Purchases Return – credit allowed for the purchase price of returned merchandise. Results in a decrease in Accounts Payable. Purchases Allowance – credit allowed for part of the purchase price of merchandise that is not returned. Occurs when merchandise is damaged but still usable or is of other quality than ordered. Vendor lets the customer keep the merchandise at a reduced price. Results in a decrease in Accounts Payable LESSON 9-1

DEBIT MEMORANDUM FOR PURCHASES RETURNS AND ALLOWANCES
Debit Memorandum – a form prepared by the customer showing the price deduction taken by the customer for returns and allowances. LESSON 9-1

JOURNALIZING PURCHASES RETURNS AND ALLOWANCES
November 28. Returned merchandise to Crown Distributing, $252.00, covering Purchase Invoice No. 80. Debit Memorandum No. 78. 2 5 1 3 4 6 7 1. Write the date. 4. Write debit memorandum number. 2. Write the account title and vendor name. 5. Write the amount. 6. Write Purchases Returns and Allow. 3. Place a diagonal line in the Post. Ref. column. 7. Write the amount. LESSON 9-1

Corporate Accounting.

Similar presentations

Presentation on theme: "Corporate Accounting."— Presentation transcript:

Similar presentations

About project

Feedback

Log in

Auth with social network:

Corporate Accounting.

Similar presentations

Presentation on theme: "Corporate Accounting."— Presentation transcript:

Similar presentations

About project

Feedback