0. Chapter 15 Accounting for Purchases and Cash Payments
What You’ll Learn
Explain the procedures for processing a purchase on account.
Describe the accounts used in the purchasing process.
Identify controls over cash.
Analyze transaction 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.
Glencoe Accounting Unit 4 Chapter 15 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

1. Chapter 15, Section 1 Purchasing Items Needed by a Business
What Do You Think?
What could occur if the buying process was not handled in an orderly fashion?
Glencoe Accounting Unit 4 Chapter 15 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

2. Purchasing Items Needed by a Business
SECTION 15.1
Main Idea
Merchandising businesses follow an orderly process for purchasing merchandise, supplies, and equipment.
You Will Learn
the fours stages in purchasing items for a business and the processes and documents related to each stage.
the purpose of the Purchases account.
Glencoe Accounting Unit 4 Chapter 15 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

3. Purchasing Items Needed by a Business
SECTION 15.1
Key Terms
purchase requisition
purchase order
packing slip
processing stamp
purchases discount
discount period
Purchases account
cost of merchandise
Glencoe Accounting Unit 4 Chapter 15 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

4. Purchasing Items Needed by a Business
SECTION 15.1
The Purchasing Process
Retail businesses need shopping bags, sales slips, and register receipts. They must also purchase other supplies, equipment, and merchandise. The purchase of the latter is divided into four stages:
requesting needed items
ordering from a supplier
verifying items received
processing the supplier’s invoice
Glencoe Accounting Unit 4 Chapter 15 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

5. Purchasing Items Needed by a Business
SECTION 15.1
Requesting Needed Items
When a company needs to buy supplies, equipment, or merchandise, a purchase requisition is prepared to request to order the specified items.
Glencoe Accounting Unit 4 Chapter 15 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

6. Purchasing Items Needed by a Business
SECTION 15.1
Ordering from a Supplier
Information from the purchase requisition is used to write a purchase order. The purchase order contains:
quantity
description
unit price
total cost
supplier’s name and address
date needed
shipping method (optional)
Glencoe Accounting Unit 4 Chapter 15 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

7. Purchasing Items Needed by a Business
SECTION 15.1
Verifying Items Received
A supplier accepts a purchase order by shipping the items and billing the buyer for them. A shipment includes a packing slip that lists all shipped items. When a shipment arrives:
The buyer unpacks and checks the contents against the packing slip.
The buyer reports discrepancies to the accounting department.
Glencoe Accounting Unit 4 Chapter 15 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

8. Purchasing Items Needed by a Business
SECTION 15.1
Processing the Supplier’s Invoice
The supplier sends an invoice, or bill, to the buyer containing the terms and the item quantity, description, price, and total cost. 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 and the invoice becomes the source for a journal entry.
Large businesses may use the voucher system for internal control.
Glencoe Accounting Unit 4 Chapter 15 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

9. Purchasing Items Needed by a Business
SECTION 15.1
Purchases Discounts
The buyer may receive a purchases discount for early payment. If the credit terms listed on the invoice are 2/10, n/30, the buyer can receive a 2% discount if payment is made within 10 days, the discount period.
If the invoice is not paid within 10 days, the buyer must pay the net amount within 30 days.
Glencoe Accounting Unit 4 Chapter 15 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

10. Purchasing Items Needed by a Business
SECTION 15.1
Processing the Supplier’s Invoice
Glencoe Accounting Unit 4 Chapter 15 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

11. Purchasing Items Needed by a Business
SECTION 15.1
The Purchases Accounts
Merchandise bought to sell to customers is recorded in the Purchases account, a temporary account that is classified as a cost of merchandise account. The Purchases account follows the rules of debit and credit for expense accounts. It is
increased by debits,
decreased by credits, and
has a normal debit balance.
Glencoe Accounting Unit 4 Chapter 15 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

12. Purchasing Items Needed by a Business
SECTION 15.1
Key Terms Review
purchase requisition
A written request that a specified item or items be orders.
purchase order
A written offer to a supplier to buy specified items.
packing slip
A form that lists the items included in the shipment.
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 Unit 4 Chapter 15 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

13. Purchasing Items Needed by a Business
SECTION 15.1
Key Terms Review
purchases discount
The buyer’s cash discount for early payment of an invoice on account.
discount period
The period of time within which an invoice must be paid if a discount is to be taken.
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 Unit 4 Chapter 15 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.