ch.7accounting for a merchandising business: … · ch.7accounting for a merchandising business:...
Post on 16-May-2018
227 Views
Preview:
TRANSCRIPT
Ch.7 Accounting for a Merchandising Business: Purchases and Cash Payments
1
Procedures and forms used in purchasing merchandise
Record credit purchases in a general journal and a purchases
journal, and post to the accounts payable ledger and the
general ledger
Purchases returns and allowances
Purchases discounts
Cash Payments Journal and posting to the accounts payable
ledger and the general ledger
Prepare a schedule of accounts payable
Record freight charges on incoming merchandise
A merchandising business earns its revenue by buying
goods and then reselling the goods to customers.
Goods that are to be sold to customers are called
merchandise.
Merchandising can take place at two levels--retail and
wholesale.
A retail business sells directly to consumers.
A wholesale business purchases goods in bulk from
manufacturers and then sells the goods to
Retailers
Other wholesalers
Schools and other nonprofit institutions
Directly to consumers
Merchandising Activity
2
Steps in Purchasing Procedures
Step 1: Managers identify goods needed and request
them by preparing a purchase requisition,
which is sent to the purchasing department.
Step 2: The purchasing department chooses the seller
(vendor) and sends an order.
Step 3: The seller receives the order and prepares an
invoice (bill), which is shipped with the goods
or a few days after the goods.
Step 4: When the merchandise is received by the buyer,
it is checked against the invoice and payment
is approved.
Purchasing Procedures
3
A written request for goods to be purchased
Purchase Requisition
4
A written or online form sent from a buyer of goods to the
seller that specifies the quantity and description of goods to
be purchased.
Purchase Order
5
• A business document that shows
Names and address of the buyer and the seller
Date and terms of the sale
Description of the goods
Price of the goods and total owed
Mode of transportation for delivery
• The same invoice serves as both a sales invoice and
a purchase invoice
Sales invoice to the seller
Purchase invoice to the buyer
Invoice
6
Invoice
7
• Percentage reductions from the list or catalog price of
merchandise.
• Not recorded in the accounting records of the buyer or the seller.
The buyer always records goods at their actual cost.
The seller records items sold at their actual selling price.
Trade Discounts
8
Cash Discounts
• A discount offered to encourage prompt and early payment by
a buyer.
• Recorded in the accounting records of both the seller and the
buyer (unlike trade discounts).
The seller refers to as sales discounts.
The buyer refers to as purchase discounts.
• A common expression of a cash discount is 2/10, n/30.
This means that a 2% discount can be taken from the
invoice price of the merchandise if the invoice is paid
within 10 days of the date of the invoice.
• The sole purpose is to keep a record of the cost of
merchandise purchased for resale during an
accounting period
• Debited for the cost of merchandise purchased for
resale
• Falls under the category of cost accounts
Cost accounts are like expense accounts
Both are presented on the income statement
and enter into the calculation of net income
The Purchases Account
9
• Assume a company purchases $575 of
merchandise from Key Suppliers on Nov. 2.
• The entry would be recorded as follows:
Recording Purchases on Account in the General Journal
10
+cost
+liability
• Used to record transactions that are similar in
nature
• Save time in recording specialized transactions
• Allow for a delegation of work because individual
accountants can be assigned to specific journals
• Examples
Purchase Journal
Cash Payments Journal
Special Journals
11
A journal used to record only credit purchases
The Purchases Journal
12
• A separate ledger containing only one type of
account is called a
• A subsidiary ledger containing only creditors’
accounts is called an
The Accounts Payable Subsidiary Ledger
13
subsidiary ledger.
accounts payable ledger.
• An account in the general ledger that summarizes
accounts in a related subsidiary ledger.
• The Accounts Payable account in the general
ledger is said to control the accounts payable
ledger.
Controlling Account
14
Relationship Between the Accounts Payable Ledger and the Controlling Account in the General Ledger
15
1
2
3
4
5
• The purchases journal must be posted to both the
subsidiary ledger and the general ledger.
• Individual credits must be posted to the creditor’s
accounts in the accounts payable ledger.
• Posting is usually done on a daily basis, to keep the
ledger current.
• The total of the money column must be posted to
the general ledger as a
Debit to the Purchases account
Credit to the Accounts Payable account
• Since this total represents total credit purchases for
the month, it is posted at the end of the month.
Posting the Purchases Journal
16
Step 1. Enter the journal entry’s date.
Step 2. Enter the amount of the journal entry in the
Credit column.
Step 3. Calculate the balance of the account and
enter it in the Balance column.
Step 4. Enter the purchase journal page in the P.R.
column.
Step 5. Enter a check mark in the P.R. column of the
purchases journal.
Posting to the Accounts Payable Ledger
17
Posting to the Accounts Payable Ledger
18
Step 1. Enter the last day of the month.
Step 2. Enter the total of the money column.
Step 3. Calculate the new balances.
Step 4. Enter the posting references.
Step 5. Enter the account numbers in the
purchases journal.
Posting to the General Ledger
19
Posting to the General Ledger
20
• In merchandising, a return occurs when a customer
returns to the seller part or all of the items
purchased.
• An allowance occurs when the seller grants a
customer a price reduction on items due to some
factor, such as damaged or defective goods.
• The seller refers to merchandise returns or
allowances as sales returns and allowances.
• The purchaser refers to merchandise returns or
allowances as purchase returns and allowances.
Merchandise Returns and Allowances
21
• An account in which the amount of returns and
allowances is usually recorded
• Contra to the Purchases account
• Has a credit balance, which is opposite to the debit
balance of the Purchases account
Purchases Returns and Allowances Account
22
Purchases Returns and Allowances Account
23
• A debit memorandum is the buyer’s written request
to the seller for credit for a merchandise return or
allowance.
• When a return or allowance is made, part or all of the
balance in the creditor’s account will not be paid.
• The buyer debits (decreases) the creditor’s account
for the amount of the return or allowance.
Recording Purchases Returns and Allowances
24
Recording Purchases Returns and Allowances
25
Purchase Return Journal Entry and Dual Posting
26
A contra purchases account used to record
discounts received for prompt payment of
merchandise invoices.
The Purchases Discounts Account
27
Example
Assume an invoice for $575, subject to a cash
discount of 2/10, n/30, is paid within the discount
period on Nov. 12.
The following entry would be prepared.
28
-liability
+contra purchases
-asset
Recording a Cash Payment Within the Discount Period
• A special journal used for recording all
disbursements of cash
• Designed to meet the needs of the business using it
• Common money columns include
Cash Cr. column
Purchases Discounts Cr. column
Account Payable Dr. column
General Dr. column
Cash Payments Journal
29
Cash Payments Journal
30
• Follows some of the same procedures used for
posting the purchases journal
• Three different types of postings made
Posting of individual debits to creditors’
accounts in the accounts payable ledger.
Usually done on a daily basis.
Posting of individual debits to appropriate
general ledger accounts from the General Debit
column. Can be posted on a daily, weekly, or
monthly basis.
Posting of special columns totals to the
appropriate general ledger accounts. Summary
posting is done at the end of the month.
Posting the Cash Payments Journal
31
Posting the Cash Payments Journal
32
Amounts in the Accounts Payable Debit column are posted separately to the
creditors’ accounts in the accounts payable ledger. A check mark is entered in
the P.R. column of the cash payments journal to indicate an individual posting.
Amounts in the General Debit column are posted individually to the general ledger
accounts identified in the Account Debited column. Account numbers of those accounts
are entered in the P.R. column of the cash payments journal. The check mark at the
bottom of the General Debit column indicates that the column total is not posted.
Posting the Cash Payments Journal
33
The totals of special columns are posted to the general ledger accounts
identified in the headings of the columns. Account numbers are entered under
the column totals to indicate that a summary posting has been made.
Posting the Cash Payments Journal
34
• A schedule of accounts payable is a listing of the
balances in the accounts payable ledger.
• The total of this schedule should agree with the
accounts payable account in the general ledger, the
controlling account.
Proving the Accounts Payable Ledger
35
Proving the Accounts Payable Ledger
36
Proving the Accounts Payable Ledger
37
Only accounts with open
balances are included on the
schedule of account payable.
• FOB Shipping Point — the buyer is responsible for all
freight costs while the goods are in transit.
• FOB Destination — the seller is responsible for all
freight costs while the goods are in transit.
• If the terms are FOB shipping point, the purchaser
debits the cost of freight to the Freight In account.
Freight Charges on Incoming Merchandise
38
Example
The following journal entry indicates the $30 freight
charge incurred by the purchaser under the freight
terms of FOB shipping point. Merchandise costing
$700 was purchased from Pantech Corp. on account
on Dec. 2.
39
General Journal
Date Account Title P.R. Debit Credit
Dec. 2 Purchases 700
Freight In 30
Accounts Payable-Pantech Corp. 730
Notice how the Freight In, Purchases Returns and
Allowances, and Purchases Discounts accounts
affect the Purchases account:
Summing Up
40
Purchases
- Purchases Discount
-Purchases Returns and
Allowances
+ Freight In
= Net Purchases
top related