1. Inventory and Purchases
Lesson 9-2
Inventory and Purchases

2. Terms
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. Its value is recorded in a general ledger account titled Merchandise Inventory, an asset account.

3. Terms Continued
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.
A merchandise inventory evaluated at the end of a fiscal period is called a periodic inventory.

4. Terms
When a periodic inventory is conducted by counting, weighing, or measuring items of merchandise on hand, it is called a physical inventory.

5. Purchasing Merchandise
Cost of Merchandise – the price a business pays for goods it purchases to sell

6. Terms
The process of ordering merchandise begins when an authorized employee submits a purchase request. A form requesting the purchase of merchandise is called a requisition.
A form requesting that a vendor sell merchandise to a business is called a purchase order.

7. Purchases on Account – A transaction in which the merchandise purchased
Purchases journal- a special journal used to record only purchases of merchandise on account.
Special amount column- a journal amount column headed with an account title.
Purchase invoice- an invoice used as a source document for recording a purchase on account transaction.
Terms of Sale- an agreement between a buyer and a seller about payment for merchandise

8. Using Special Journals
The date by which an invoice must be paid is called the due date. 
Special journal- a journal used to record only one kind of transaction.
Purchases – for all purchases of merchandise (not supplies) ON ACCOUNT! (debit Purchases, credit AP)

9. Terms
Terms of Sale
2/10 n/30
I save 2% if I pay my bill in 10 days otherwise, I pay the full (net) bill in 30 days!

10. 9 - 4 Terms
Cash Payments Journal * – for all cash payments (expenses, paying off accounts payable, petty cash, withdrawals of cash)
A deduction that a vendor allows on the invoice amount to encourage prompt payment is called a cash discount *. (This reduces what we have to pay!)
A cash discount on purchases taken by a customer is called a purchases discount *.
A journal amount column that is not headed with an account title is called a general amount column *.

11. Terms
List Price *- The retail price listed in a catalog or on the Internet
Trade Discount *– A reduction in the list price granted to customers – do NOT record trade discounts, just calculate!
The price after the trade discount has been deducted from the list price is referred to as the net price *.

12. 9-2 Terms Cont.
The period of time during which a customer may take a cash discount is called the discount period *. Net thirty means that the total invoice amount must be paid within.
An account that reduces a related account on a financial statement is called a contra account *.

13. Contra Accounts
Contra Account – this account contradicts its related account or reduces it.
It has the opposite normal balance!
Purchases go up by a debit, the contra acct., purchases discount, reduces purchases, and goes up by a credit!