2. The Purchasing Process
Purchasing Items Needed by a Business
Section 15.1
Requesting needed items
The purchase of
supplies, equipment, and merchandise is divided into four stages:
Ordering from a supplier
Verifying items received
Processing the supplier’s invoice
Glencoe Accounting

3. The Purchasing Process
Purchasing Items Needed by a Business
Section 15.1
Purchase Requisition
See page 420
purchase requisition
A written request that a specified item or items be ordered.
Glencoe Accounting

4. The Purchasing Process
Purchasing Items Needed by a Business
Section 15.1
Contents of the Purchase Order Include:
Quantity
Description
purchase order
A written offer to a supplier to buy specified items.
Unit price
Total cost
Supplier’s name and address
Date needed
Shipping method (optional)
Glencoe Accounting

5. The Purchasing Process
Purchasing Items Needed by a Business
Section 15.1
The buyer unpacks and checks the contents against the packing slip.
Verifying Items Received
When a shipment arrives:
The buyer reports discrepancies to the accounting department.
packing slip
A form that lists the items included in the shipment.
Glencoe Accounting

6. The Purchasing Process
Purchasing Items Needed by a Business
Section 15.1
Processing the Supplier’s Invoice
The supplier sends an invoice, or bill, to the buyer.
The accounting department checks the invoice against the packing slip and purchase order.
If there are no discrepancies, a processing stamp is placed on the invoice.
processing stamp
A stamp placed on a creditor’s invoice that outlines the steps to be followed in processing the invoice for payment.
Glencoe Accounting

7. The Purchasing Process
Purchasing Items Needed by a Business
Section 15.1
Processing the Supplier’s Invoice
See page 422
Glencoe Accounting

8. The actual cost to the business of the merchandise sold to customers.
The Purchases Account
Purchasing Items Needed by a Business
Section 15.1
Merchandise bought to sell to customers is recorded in the Purchases account, a temporary account that is classified as a cost of merchandise account.
Purchases account
The account used to record the cost of merchandise purchased during a period.
cost of merchandise
The actual cost to the business of the merchandise sold to customers.
Glencoe Accounting

9. Purchases of Assets on Account
Analyzing and Recording Purchases on Account
Section 15.2
The most important thing a retail business purchases is merchandise to resell.
Merchandise can be bought on a cash basis or on account.
Glencoe Accounting

10. Purchases of Assets on Account
Analyzing and Recording Purchases on Account
Section 15.2
The Accounts Payable Subsidiary Ledger Form
See page 424
accounts payable subsidiary ledger
A separate ledger that contains accounts for all creditors; it is summarized in the Accounts Payable controlling account in the general ledger.
Glencoe Accounting

11. Purchases of Assets on Account
Analyzing and Recording Purchases on Account
Section 15.2
After an invoice is journalized, it is put in a tickler file according to its due date.
tickler file
A file that contains a folder for each day of the month into which invoices are placed according to their due dates.
due date
The date by which an invoice must be paid.
Glencoe Accounting

12. Purchases of Assets on Account
Analyzing and Recording Purchases on Account
Section 15.2
Business Transaction
On December 14 The Starting Line purchased $2,300 in merchandise on account from Pro Runner Warehouse, Invoice 7894.
See pages 425–426
Glencoe Accounting

13. Purchases of Assets on Account
Analyzing and Recording Purchases on Account
Section 15.2
Business Transaction
On December 15 The Starting Line received Invoice 3417, dated December 13, from Champion Store Supply for store equipment bought on account for $1,200, terms n/30.
See pages 426–427
Glencoe Accounting

14. Purchases Returns and Allowances
Analyzing and Recording Purchases on Account
Section 15.2
Purchases Return
Occasionally, a business buys merchandise that, upon inspection, is unacceptable.
Purchases Allowance
Debit Memorandum
Glencoe Accounting

15. Purchases Returns and Allowances
Analyzing and Recording Purchases on Account
Section 15.2
See page 427
Glencoe Accounting

16. Purchases Returns and Allowances
Analyzing and Recording Purchases on Account
Section 15.2
Business Transaction
On December 16 The Starting Line issued Debit Memorandum 51 for the return of $200 in merchandise purchased on account from FastLane Athletics.
See page 428
Glencoe Accounting

17. Purchases Returns and Allowances
Analyzing and Recording Purchases on Account
Section 15.2
Posting to General Ledger Accounts Payable Subsidiary Ledger
See page 429
Glencoe Accounting

18. Controls over Cash How Businesses Can Manage Cash Payments
Analyzing and Recording Cash Payments
Section 15.3
How Businesses Can Manage Cash Payments
Require proper authorization of all cash payments.
Write checks for all payments.
Use prenumbered checks.
Retain and account for voided checks.
Glencoe Accounting

19. Cash Payment Transactions
Analyzing and Recording Cash Payments
Section 15.3
Business Transaction
On December 19 The Starting Line purchased merchandise from FastLane Athletics for $1,300, Check 1002.
See page 433
Glencoe Accounting

20. Cash Payment Transactions
Analyzing and Recording Cash Payments
Section 15.3
FOB destination
Shipping terms are stated as
FOB shipping point
FOB destination
Shipping term specifying that the supplier pays the shipping cost to the buyer’s destination.
FOB shipping point
Shipping term specifying that the buyer pays the shipping charge from the supplier’s shipping point.
Glencoe Accounting

21. Cash Payment Transactions
Analyzing and Recording Cash Payments
Section 15.3
Business Transaction
On December 24, The Starting Line issued Check 1004 for $275 to Dara’s Delivery Service for shipping charges on merchandise purchased from Sports Link Footwear.
See page 435
Glencoe Accounting

22. Cash Payment Transactions
Analyzing and Recording Cash Payments
Section 15.3
An insurance premium is paid at the beginning of the covered period and is recorded in the Prepaid Insurance asset account.
premium
The amount paid for insurance.
Glencoe Accounting

23. Cash Payment Transactions
Analyzing and Recording Cash Payments
Section 15.3
Banks charge a bankcard fee for handling bankcard sales slips.
Business Transaction
On December 31 The Starting Line records the bankcard fee of $75, December bank statement.
bankcard fee
A fee charged for handling bankcard sales slips; usually based on the total amounts recorded on the sales slips processed.
See page 435
Glencoe Accounting

24. 1. Requesting needed items ___________________
Question 1
From the four choices below, select the form that is related to each step in the purchasing process.
purchase order
packing slip
processing stamp
purchase requisition
1. Requesting needed items ___________________
2. Ordering from the supplier ___________________
3. Verifying items received ___________________
4. Processing supplier’s invoice ___________________
purchase requisition
purchase order
packing slip
processing stamp
Glencoe Accounting

25. Question 2
If you ordered merchandise from a vendor in New York City and the terms stated “FOB Chicago” and your company is in Denver, what would that mean?
FOB, which means “free on board,” can be the starting point, the destination, or any point in between. In this case, with FOB Chicago as the shipping terms, the vendor would pay all transportation and bear the liability for the goods from New York City to Chicago. In Chicago, ownership of the goods would shift from the vendor to you, the customer. At this time, you must pay all transportation and assume the liability for the goods from Chicago to Denver.
Glencoe Accounting

26. Question 3
Your business received an invoice dated February 5 totaling $2, The vendor has offered the terms of 2/10, n/30. You pay on February 15. Calculate the following: $
total amount of purchase __________
amount of discount __________
amount of check __________
Now indicate whether you would debit or credit the following accounts.
Accounts Payable __________
Vendor’s subsidiary account __________
Purchases Discounts __________
Cash in Bank __________
$58.00 $
Debit
Debit
Credit
Credit
Glencoe Accounting

27. End of