1. Ch. 15: Accounting for Purchases and Cash Payments
Accounting II
Ms. Alltucker

2. Learning Objectives
Explain the procedures for processing a purchase on account
Describe the accounts used in the purchasing process
Analyze transactions relating to the purchase of merchandise
Record a variety of purchases and cash payment transactions
Post to the accounts payable subsidiary ledger
Define the accounting terms in this chapter

3. Section 1: Purchasing Items Needed by a Business
What you will learn:
About the paperwork involved in the purchasing process
The purpose of the Purchase discount account
The purpose of the Purchases account and its rules of debits and credits
Why it’s important:
It is essential that businesses establish controls and procedures for handling the purchase of assets in a systematic manner because the purchasing process results in a large outflow of cash

4. The Purchasing Process
The purchases of supplies, equipment, and merchandise is divided into four stages:
Requesting needed items
Ordering from a supplier
Verifying items received
Processing the supplier’s invoice

5. Purchasing Process Requesting Needed Items
Purchase requisition written request that a certain item or items be purchased
Pre-numbered, multi-copied form
Approved by the manager
Original copy sent to the purchasing department
Person making a request keeps a copy
Look on page 389 in your textbook for an example

6. Purchasing Process Ordering from a Supplier
Purchase order written offer to a supplier to buy certain items
Most info comes from the purchase requisition
Contains: quantity, description, unit price, total cost, supplier’s name and address, date needed, shipping method
Pre-numbered, multi-copied form
Original copy sent to supplier
One copy  department requesting the item
One copy kept in purchasing department
Look on page 389 in your textbook for an example

7. Purchasing Process Verifying Items Received
Packing slip form that lists the items included in the shipment
When received, it is unpacked and checked to see if all items were delivered
If not all items are present, a note is given on the packing slip and given to the accounting department

8. Purchasing Process Processing the Supplier’s Invoice
Suppliers prepare a bill—invoice
Credit terms, quantity, description, unit price, total cost, order number, and delivery method
Sent directly to accounting department—stamped to indicate it was received
Accountant verifies the invoice
Processing stamp placed on the invoice to enter: date to be paid, discount amount (if any), amount to be paid, and check number
Look on page 391 in your textbook for an example

9. Purchases Discounts Purchases discount
Suppliers frequently offer charge customers a cash discount for early payment
Purchase discount and a cash discount are calculated in the same way

10. Purchases Discount 1. Merchandise Discount $2,300 X .02 = $46
Purchased X Rate = Discount
Example
$2,300 X .02 = $46
Amount Paid
Within
Invoice Discount Discount
Amount – Amount = Period
$2,300 – $46 = $2,254

11. Purchases Discount Discount Period 2/10, n/30
If you pay within 10 days of purchase date, you will receive a 2% discount
If you do not pay within 10 days of purchase date, the full amount is due in 30 days from purchase date

12. Purchase Account Temporary account
Classified as a cost of merchandise account
Actual cost to the business of the merchandise sold to customers
Follows the rules of debits and credits as expense accounts
Debit +
Increase Side
Normal Balance
Credit –
Decrease Side
Purchases

13. Thinking Critically
1. Explain the steps in the purchasing process from the request for merchandise to the payment of the invoice.
2. When a business purchases merchandise for resale, what accounts are affected?