1. @ 2012, Cengage Learning Accounting for Merchandising Businesses LO 3b – Recording Purchase Transactions

2. Chart of Accounts LO 3

3. * Purchase Transactions LO 3 On January 3, NetSolutions purchased merchandise for cash. NOTE: We will assume a perpetual inventory system is used.

4. * Purchase Transactions LO 3 On January 4, NetSolutions purchased merchandise on account from Thomas Corporation.

5. Purchases Discounts  A buyer may receive a discount from the seller (sales discount) for early payment of the amount owed. From the buyer’s perspective, such discounts are called purchases discounts. LO 3

6. Purchase Transactions LO 3 Alpha Technologies issued an invoice for $3,000 to NetSolutions dated March 12, with terms 2/10, n/30. NetSolutions is trying to determine if it should pay the invoice within the discount period.

7. If NetSolutions can borrow cash at an annual interest rate of 6%, should the firm borrow cash to pay the invoice within the discount period? Discount of 2% on $3,000$60.00 Interest for 20 days at the rate of 6% on $2,940 – 9.80 Savings from borrowing$50.20 YES LO 3 Purchase Transactions

8. LO 3

9. Assume that instead of paying the invoice within the discount period, NetSolutions pays the invoice on April 11. Discount Not Taken LO 3

10. Purchases Returns and Allowances  A purchases return involves actually returning merchandise that is damaged or does not meet the specifications of the order. From a buyer’s perspective, such returns are called purchases returns and allowances.

11. LO 3 Debit Memo  A debit memorandum, often called a debit memo, informs the seller of the amount the buyer proposes to debit to the account payable due the seller.

12. LO 3 Debit Memo

13. LO 3 NetSolutions records the return of the merchandise indicated in the debit memo in Exhibit 9 as follows: Debit Memo

14. On May 2, NetSolutions purchased $5,000 of merchandise on account from Delta Data Link, terms 2/10, n/30. Merchandise Purchased LO 3

15. On May 4, NetSolutions returned $3,000 of the merchandise purchased from Delta Data Link. LO 3 Merchandise Returned

16. On May 12, NetSolutions paid for the purchase of May 2 less the return and discount. Invoice Paid LO 3