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Home. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Merchandising businesses follow an orderly process for purchasing.

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Presentation on theme: "Home. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Merchandising businesses follow an orderly process for purchasing."— Presentation transcript:

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2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Merchandising businesses follow an orderly process for purchasing merchandise, supplies, and equipment. The accounting department is responsible for making the cash payments for the business. Individual accounts payable transactions are posted to a subsidiary ledger. Glencoe AccountingCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Home

3 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Explain the procedures for processing a purchase on account. Describe the accounts used in the purchasing accounts. Analyze transactions relating to the purchase of merchandise. Record a variety of purchases and cash payments. Post to the accounts payable subsidiary ledger. Identify controls over cash. Glencoe AccountingCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Home

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

5 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting The Purchasing Process Purchasing Items Needed by a Business Section 15.1 The purchase of supplies, equipment, and merchandise is divided into four stages: Requesting needed items Ordering from a supplier Verifying items received Processing the supplier’s invoice Home

6 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting The Purchasing Process Purchasing Items Needed by a Business Section 15.1 Purchase Requisition purchase requisition A written request that a specified item or items be ordered. See page 420 Home

7 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting The Purchasing Process Purchasing Items Needed by a Business Section 15.1 Contents of the Purchase Order Include: Quantity Description Unit price Total cost Supplier’s name and address Date needed Shipping method (optional) purchase order A written offer to a supplier to buy specified items. Home

8 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting The Purchasing Process Purchasing Items Needed by a Business Section 15.1 Verifying Items Received When a shipment arrives: The buyer unpacks and checks the contents against the packing slip. packing slip A form that lists the items included in the shipment. The buyer reports discrepancies to the accounting department. Home

9 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting The Purchasing Process Purchasing Items Needed by a Business Section 15.1 Processing the Supplier’s Invoice The supplier sends an invoice, or bill, to the buyer. processing stamp A stamp placed on a creditor’s invoice that outlines the steps to be followed in processing the invoice for payment. 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. Home

10 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting The Purchasing Process Purchasing Items Needed by a Business Section 15.1 purchases discount The buyer’s cash discount for early payment of an invoice on account. Two Types of Discounts: Purchases Discount Discount Period discount period The period of time within which an invoice must be paid if a discount is to be taken. Home

11 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting The Purchasing Process Purchasing Items Needed by a Business Section 15.1 Processing the Supplier’s Invoice See page 422 Home

12 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting The Purchases Account Purchasing Items Needed by a Business Section 15.1 Merchandise bought to sell to customers is recorded in the Purchases account, a temporary account that is classified as a cost of merchandise account. 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. Home

13 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Key Terms accounts payable subsidiary ledger tickler file due date purchases return purchases allowance debit memorandum Analyzing and Recording Purchases on Account Section 15.2 Home

14 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Purchases of Assets on Account Analyzing and Recording Purchases on Account Section 15.2 The most important thing a retail business purchases is merchandise to resell. Merchandise can be bought on a cash basis or on account. Home

15 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Purchases of Assets on Account Analyzing and Recording Purchases on Account Section 15.2 The Accounts Payable Subsidiary Ledger Form accounts payable subsidiary ledger A separate ledger that contains accounts for all creditors; it is summarized in the Accounts Payable controlling account in the general ledger. See page 424 Home

16 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Purchases of Assets on Account Analyzing and Recording Purchases on Account Section 15.2 When a purchase of merchandise on account is recorded, a diagonal line is entered in the Posting Reference column to indicate the credit amount is posted in two places: The Accounts Payable controlling account The individual account in the accounts payable subsidiary ledger Home

17 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Purchases of Assets on Account Analyzing and Recording Purchases on Account Section 15.2 After an invoice is journalized, it is put in a tickler file according to its due date. tickler file A file that contains a folder for each day of the month into which invoices are placed according to their due dates. due date The date by which an invoice must be paid. Home

18 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Purchases of Assets on Account Analyzing and Recording Purchases on Account Section 15.2 Business Transaction On December 14 The Starting Line purchased $2,300 in merchandise on account from Pro Runner Warehouse, Invoice See pages 425–426 Home

19 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Purchases of Assets on Account Analyzing and Recording Purchases on Account Section 15.2 Business Transaction On December 15 The Starting Line received Invoice 3417, dated December 13, from Champion Store Supply for store equipment bought on account for $1,200, terms n/30. See pages 426–427 Home

20 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Purchases Returns and Allowances Analyzing and Recording Purchases on Account Section 15.2 Occasionally, a business buys merchandise that, upon inspection, is unacceptable. purchases return The return of merchandise bought on account to the supplier for full credit. Purchases Return Purchases Allowance Debit Memorandum Home

21 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Purchases Returns and Allowances Analyzing and Recording Purchases on Account Section 15.2 Occasionally, a business buys merchandise that, upon inspection, is unacceptable. purchases allowance A price reduction given when a business keeps unsatisfactory merchandise it has bought. Purchases Return Purchases Allowance Debit Memorandum Home

22 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Purchases Returns and Allowances Analyzing and Recording Purchases on Account Section 15.2 Occasionally, a business buys merchandise that, upon inspection, is unacceptable. debit memorandum The form a business uses to notify its suppliers (creditors) of a return or to request an allowance. Purchases Return Purchases Allowance Debit Memorandum Home

23 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Purchases Returns and Allowances Analyzing and Recording Purchases on Account Section 15.2 See page 427 Home

24 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Purchases Returns and Allowances Analyzing and Recording Purchases on Account Section 15.2 Business Transaction On December 16 The Starting Line issued Debit Memorandum 51 for the return of $200 in merchandise purchased on account from FastLane Athletics. See page 428 Home

25 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Purchases Returns and Allowances Analyzing and Recording Purchases on Account Section 15.2 Posting to General Ledger Accounts Payable Subsidiary Ledger See page 429 Home

26 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Key Terms premium FOB destination FOB shipping point bankcard fee Analyzing and Recording Cash Payments Section 15.3 Home

27 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Controls over Cash Analyzing and Recording Cash Payments Section 15.3 How Businesses Can Manage Cash Payments Require proper authorization of all cash payments. Write checks for all payments. Use prenumbered checks. Retain and account for voided checks. Home

28 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Cash Payment Transactions Analyzing and Recording Cash Payments Section 15.3 An insurance premium is paid at the beginning of the covered period and is recorded in the Prepaid Insurance asset account. premium The amount paid for insurance. Home

29 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Cash Payment Transactions Analyzing and Recording Cash Payments Section 15.3 Business Transaction On December 19 The Starting Line purchased merchandise from FastLane Athletics for $1,300, Check See page 433 Home

30 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Cash Payment Transactions Analyzing and Recording Cash Payments Section 15.3 Recording Cash Payments for Items Purchased on Account See page 433 Home

31 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Cash Payment Transactions Analyzing and Recording Cash Payments Section 15.3 Shipping terms are stated as FOB destination FOB shipping point FOB destination Shipping term specifying that the supplier pays the shipping cost to the buyer’s destination. FOB shipping point Shipping term specifying that the buyer pays the shipping charge from the supplier’s shipping point. Home

32 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Cash Payment Transactions Analyzing and Recording Cash Payments Section 15.3 Business Transaction On December 24, The Starting Line issued Check 1004 for $275 to Dara’s Delivery Service for shipping charges on merchandise purchased from Sports Link Footwear. See page 435 Home

33 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Cash Payment Transactions Analyzing and Recording Cash Payments Section 15.3 Business Transaction On December 31 The Starting Line records the bankcard fee of $75, December bank statement. Banks charge a bankcard fee for handling bankcard sales slips. bankcard fee A fee charged for handling bankcard sales slips; usually based on the total amounts recorded on the sales slips processed. See page 435 Home

34 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Question 1 a)purchase order b)packing slip c)processing stamp d)purchase requisition 1. Requesting needed items ___________________ 2. Ordering from the supplier___________________ 3. Verifying items received___________________ 4. Processing supplier’s invoice ___________________ From the four choices below, select the form that is related to each step in the purchasing process. purchase requisition purchase order packing slip processing stamp Home

35 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Question 2 If you ordered merchandise from a vendor in New York City and the terms stated “FOB Chicago” and your company is in Denver, what would that mean? FOB, which means “free on board,” can be the starting point, the destination, or any point in between. In this case, with FOB Chicago as the shipping terms, the vendor would pay all transportation and bear the liability for the goods from New York City to Chicago. In Chicago, ownership of the goods would shift from the vendor to you, the customer. At this time, you must pay all transportation and assume the liability for the goods from Chicago to Denver. Home

36 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.Glencoe Accounting Question 3 Your business received an invoice dated February 5 totaling $2, The vendor has offered the terms of 2/10, n/30. You pay on February 15. Calculate the following: 1.total amount of purchase __________ 2.amount of discount__________ 3.amount of check__________ Now indicate whether you would debit or credit the following accounts. 4.Accounts Payable __________ 5.Vendor’s subsidiary account__________ 6.Purchases Discounts__________ 7.Cash in Bank__________ $ $58.00 $ Debit Credit Home

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