1. Chapter 8 Accounting for Purchases and Accounts Payable

2. Source Documents Purchases Requisition Purchase Order
Lists items needed
Internal document
Purchase Order
External
Sent to Supplier

3. Source Documents Purchases Requisition Purchase Order
Lists items needed
Internal document
Purchase Order
External
Sent to Supplier

4. Source Documents Receiving Report Invoice Shows items received
From supplier showing what was shipped
Compared with the receiving report

5. Purchases Journal Used for merchandise purchased on credit
More efficient than General Journal
Fewer postings to general ledger
Speed up recording time for transactions
Purchase Journal Format (3-Column)
Accounts Payable - Credit
Purchases - Debit
Freight-in Debit

6. Posting Process
Each transaction is posted to a supplier account at the time of the transaction.
Posted to the credit side on the account
Summary postings are made monthly.
Account Payable - Credit
Purchases - Debit
Freight-in - Debit

7. Pop Quiz #1 - True or False?
A purchase requisition states what the buyer wishes to purchase.
The invoice is the bill that comes after goods are shipped or received.
True

8. Pop Quiz #1- True or False?
Freight-In is a selling expense for the business that purchases the item shipped.
A purchases journal is used to record all purchases that a business makes.
Purchases is a balance sheet account.
False

9. Accounts Payable Ledger
Subsidiary Ledger - Separate/Subordinate to General Ledger
Lists the name of all creditors (suppliers)
Balances are presumed to be credit balances
Circled balances can be used to indicate debit
Postings to this ledger are made daily from
Purchases Journal
General Journal

10. Purchases Returns & Allowances
Contra expense account
Normal credit balance
Control Account - Purchases
Returns:
Merchandise returned for credit
Allowances:
Price reduction for inferior merchandise

11. General Journal Entry
When a company returns or receives an allowance for merchandise the following entry is made:
Accounts Payable / Supplier xx
Purchases Ret. & Allow xx
Credit Memo #xx
Three postings are required for this entry.

12. Schedule of Accounts Payable
Lists amounts (balances) owed to creditors.
Suppliers are listed in alphabetical order.
Total is compared to the balance in Accounts Payable in the General Ledger.
Accounts Payable (General Ledger) is the control account and is the link between the two ledgers.

13. Cost of Purchases Purchases Freight In Purchases Returns & Allowances
= Delivered Cost of Purchases

14. Calculating Purchases. . .
A truckload of 20 washing machines were purchased at a cost of $100 per machine. The cost of the freight to deliver these machines was $100. One of the washing machines was returned to the supplier because it was defective.
What is the cost of this purchase?

15. Pop Quiz #2 - True or False?
A purchases discount is given to encourage prompt payment.
Good internal control of purchasing means giving salespeople the authority to order merchandise.

16. Pop Quiz #2 - True or False?
The total from the purchases journal on accounts payable is posted to inventory.
Freight In must be added to purchase cost to determine true cost of purchases.
False
True