1. CHAPTER 19 Recording Purchases and Cash Payments Using Special Journals

2. CORPORATIONS  Corporations…  Are organizations with the legal rights of a person  May be owned by many persons  Formed by receiving approval from a state or federal agency  May also sell unit of ownership called a share of stock

3. Special Journals  A special journal is a journal used to record only one kind of transaction.  Allow the work of journalizing to be divided among several accounting clerks.  Clerks specialize in kind of transaction recorded – helps to improve efficiency of recording transactions

4. 4 Kinds of Special Journals 1. Purchases Journal 2. Cash Payments Journal 3. Sales Journal 4. Cash Receipts Journal *A general journal is used for all other transactions.

5. Purchases Journal  Used for all purchases on account.  Used only to record purchases on account.  One column: Account Credited  One entry represents the Purchases Debit AND the Accounts Payable Credit  Source Document = purchases invoice

6. Example  May 1: Purchased merchandise on account from Cell Systems, $6,667. P39  Write the date  Write the vendor name (Cell Systems) in the “Account Credited” column  Write the invoice number (39) in the “Purchases No.” column

7. Posting from a Purchases Journal to Accounts Payable Ledger 1. Write the date 2. Write the abbreviation & page number of the journal (P3) is written in the Post. Ref. column of the account. 3. Record the amount in the Credit column 4. Calculate new Credit balance 5. Go back to purchases journal and write vendor number in the Post.Ref. column

8. Posting from a Purchases Journal to General Ledger 1. At the end of each month, a purchases journal is totaled and ruled. 2. Single rule and add the amount column. 3. Post the total amount of the purchases journal to 2 general ledger accounts: Purchases as a debit Accounts Payable as a credit

9. Cash Payments Journal  Used for all cash payments transactions.  Used only to record payments of cash.  Most cash payments are for… Expenses Cash purchases Payments to Vendors

10. Example  May 2: Paid cash for rent. C148  Write the date  Debit Rent Expense  Credit Cash  Illustration 19-7 textbook page 478

11. Trade Discounts  A trade discount is a reduction in the list price granted to customers.  The list price is the amount printed or a catalog price.  Example: textbook page 479

12. Cash Discounts  A cash discount is given to encourage prompt payment.  Usually stated as a percentage that can be deducted from the invoice amount.  Ex: 2/10 (Means 2% of the invoice amount may be deducted if the invoice is paid within 10 days of the invoice date.  Ex: n/30 (Means that invoice amount must be paid in 30 days)

13. Purchases Discounts  A purchase discount is a cash discount on purchases taken by the customer.  When the purchases discount is taken, the customer pays less cash than the invoice amount previously recorded  Therefore, purchases discounts are deducted from purchases.

14. Purchases Discounts  Purchases discounts are recorded in a general ledger account titled Purchases Discount.  It is a contra account because it reduces Purchases.

15. Purchases Discounts  Example: Paid cash on account to Cell Systems, $6,538.56, covering Purchases Invoice No.39 for $6,672, less 2% discount, $133.44. Check no.168.  $6,672 (Purchase Invoice Amount) x 2% = $133.44 (Purchases Discount)  $6,672 (Purchase Invoice Amount) - $ 133.44 (Purchases Discount) = $6,538.56 (Cash Amount after Discount )

16. Purchases Discounts  Example continued...  GENERAL LEDGER  Debit Accounts Payable: $6,672  Credit Cash: $6,538.56  Credit Purchases Discount: $133.44  ACCOUNTS PAYABLE LEDGER  Debit Cell Systems: $6,672

17. Cash Payments/Trade Discounts  Ex: Celluphone wishes to buy 80 cell phones carrying cases for cash. The price quoted was $10 list price/case less 40% trade discount.  Here’s how to calculate the total invoice amount: 1. $10 (list price) x 40% (trade discount rate) = $4 (trade discount) 2. $10 (list price) - $4 (discount) = $6 (invoice amount/case) 3. $6 (invoice amount/case) x 80 cases = $480 (total invoice amount)

18. Cash Payments on Account without discounts  Example: Paid cash on account to Electro Sound, $1,740, covering Purchase Invoice No.21. Check No. 150.  GENERAL LEDGER  Debit Accounts Payable: $1,740  Credit Cash: $1,740  ACCOUNTS PAYABLE LEDGER  Debit Electro Sound: $1,740

19. Replenish Petty Cash Fund  Need to determine if petty cash is correct.  Compare 2 things...  The amount that should be on hand  Amount that is in the petty cash box  Cash can equal, it can be short, or it can be over.

20. Cash Short & Over Account  Cash Short: petty cash on had amount that is LESS than a recorded amount.  Cash Over: petty cash on had amount that is MORE than a recorded amount.  This is a temporary account.  Used to record shortages and overages.

21. Cash Short & Over Account  May be an expense or a revenue account.  Cash Short = an expense: DEBIT  Cash Over = revenue: CREDIT

22. Petty Cash Short  Example: Paid cash to replenish the petty cash fund, $233.45: supplies, $87.80, advertising $43.75, miscellaneous, $97.90; cash short, $4. C209  Debit Supplies: $87.80  Debit Advertising Expense: $43.75  Debit Miscellaneous Expense: $97.90  Debit Cash Short and Over: $4  Credit Cash: $233.45

23. Petty Cash Over  Example: Paid cash to replenish the petty cash fund, $283.80: supplies, $107.45, advertising $57, miscellaneous, $121.90; cash over, $2.55. C267  Debit Supplies: $107.45  Debit Advertising Expense: $57  Debit Miscellaneous Expense: $121.90  Debit Cash Short and Over: $2.55  Credit Cash: $283.80

24. General Journal  A general journal is a journal where all kinds of transactions can be recorded.  Only has 2 amount columns  General Debit  General Credit

25. Purchases Returns & Allowances  A purchases return is credit allowed for the purchase price of returned merchandise.  When merchandise is damaged but still usable or of different quality than that ordered, the vendor may let the customer keep the merchandise at a reduced price.

26. Purchases Returns & Allowances  A purchases allowance is credit allowed for part of the purchase price of merchandise that is not returned.  Results in a decrease in the customer’s accounts payable.  Decreases Purchases

27. Purchases Returns & Allowances  Example: Returned merchandise to Interstate Com, $375, covering P30. DM 18.  GENERAL LEDGER  Debit Accounts Payable: $375  Credit Purchases Returns and Allowance: $375  ACCOUNTS PAYABLE LEDGER  Debit Interstate Com: $375