Presentation on theme: "Chapter 10 Journalizing Purchases and Cash Payments"— Presentation transcript:
1Chapter 10 Journalizing Purchases and Cash Payments Using Special Journals
2PartnershipsEncore Music, the business described in Cycle 1, is a small business owned by one personProprietorshipA business in which two or more persons combine their assets and skills is called a partnershipAs in proprietorships, reports and financial records of the business are kept separate from personal records
310-1 Journalizing Purchases Using a Purchases Journal
4The Business - Omni Import A business that purchases and sells goods is called a merchandising businessA merchandising business that sells to those who use or consume the goods is called a retail merchandising businessDiffers from a service business by actually selling merchandise, a tangible product
5Using Special Journals A business with a limited number of daily transactions may record all entries in one journalA business with many daily transactions may choose to use a separate journal for each kind of transactionA journal used to record only one kind of transaction is called a special journal
6Using Special Journals Omni Imports uses five journals to record daily transactions:Purchases journal: For all purchases of merchandise on accountCash payments journal: For all cash payments
7Using Special Journals Sales Journal: For all sales of merchandise on accountCash Receipts Journal: For all cash receiptsGeneral Journal: For all other transactions
8Purchasing Merchandise The price a business pays for goods it purchases to sell is called cost of merchandiseThe selling price of merchandise must be greater than the cost of the merchandise for the business to make a profit
9Purchasing Merchandise The amount added to the cost of merchandise to establish the selling price is called markupRevenue earned from the sale of merchandise includes both the cost and markupOnly the markup increases capital
10Purchasing Merchandise Accounts for the cost of merchandise are kept in a separate division of the general ledgerThe cost of merchandise division is shown on p. 219
11Purchasing Merchandise A business from which merchandise is purchased or supplies or other assets are bought is called a vendorThe account used for recording the cost of merchandise is titled Purchases
12Purchasing Merchandise Purchases is classified as a cost account because it is in the cost of merchandise division in the chart of accountsBecause the cost of merchandise reduces capital when merchandise is purchased, it has a normal debit balance
13Purchases on AccountThe cost account, Purchases, is used only to record the cost of merchandise purchasedSupplies, other items are not recorded hereA transaction at which the merchandise purchased is to be paid at a later date is known as a purchase on account
14Purchases on AccountMost businesses will keep separate ledgers for each vendorThe total amount owed to all vendors can be summarized in a single general ledger account
15Purchases on AccountA liability account that summarizes all amounts owed to vendors is Accounts PayableThe liability account, Accounts Payable, has a normal credit balance
16Purchases JournalOmni uses a special journal to record only purchases of merchandise on accountPurchases JournalPurchases journal records on only one lineAmount column has two headingsp. 224All purchases on account involve a debit to Purchases and a credit to Accounts Payable
17Purchase InvoiceWhen a vendor sells merchandise to a buyer, the vendor prepares a form showing what has been soldPurchase InvoiceThis invoice lists the quantity, the description, price of each item and total amount of invoice
18Purchasing Merchandise on Account Purchased merchandise on account from Crown Ltd., $ Purchase Invoice No. 83.
19Totaling and Ruling a Purchases Journal Omni always rules its purchases journal at the end of each month, even if the page for the month is not full
20Totaling and Ruling a Purchases Journal StepsRule a single line across the amount column under the last entryWrite the date in date columnWrite “Total” in account credited columnAdd the amount column / verifyWrite the total below the single lineRule double lines under the total
2110-2 Journalizing Cash Payments Using a Cash Payments Journal
22Cash Payments JournalA special journal used to record only cash payment transactions is called a cash payments journalAmount columnsCashAccounts PayableGeneral (used for amounts that don’t occur frequently)
23Cash Payments Journal Source document is usually check issued For payments not using a check, source document is memorandum
24Purchasing Merchandise for Cash Purchased merchandise for cash, $575. Check No. 290.
25Buying Supplies for Cash Paid cash for office supplies, $ Check No 292Supplies are not recorded in purchases account b/c they aren’t intended for saleIncreases office supplies account balance, decreases cash account balanceSame steps as journalizing purchasing merch for cash
26Cash Payment on Account Paid cash on account to Pacific Imports, $ , covering Purchase Invoice No Check No 294.
27Cash Payment of an Expense Paid cash for advertising, Check No 296.
29Cash Payment to Replenish Petty Cash Paid cash to replenish the petty cash fund, $205: office supplies, $35; store supplies, $47; advertising, $92; miscellaneous, $31. Check No 297.
30Cash Withdrawals by Partners Assets taken out of a business for the personal use of an owner are known as withdrawalsCash and Merchandise generally taken out of a merchandising businessWithdrawals reduce the amount of a business’s capital
31Cash Withdrawals by Partners Since capital accounts have credit balances, partners’ drawing accounts have normal debit balancesp. 235Michelle Wu, partner, withdrew cash for personal use, $ Check No 298.
32Totaling, Proving, and Ruling a Cash Payments Journal to Carry Totals Forward A journal is proved and ruled whenever a journal page is filled and always at the end of a monthTotal debits must equal total creditsAfter a journal is proved, the journal is ruled in preparation for forwarding to the next pageExample p. 236
33Starting a New Cash Payments Journal Page The totals from the previous journal page are carried forward to the next journal pageThe total are recorded on the first line of the new pagep. 237 example
34Totaling, Proving and Ruling a Cash Payments Journal at the End of a Month Equality of debits and credits in a journal is proved at the end of each monthExample p. 238
3510-4 Journalizing Other Transactions Using a General Journal
36General JournalNot all transactions can be recorded in special journalsTransactions that can’t be are recorded in a general journalIf a transaction is not recorded in the purchases journal, cash payments journal, sales journal or cash receipts journal - it will be recorded in the general journal
37Buying Supplies on Account p. 241 ExampleBought store supplies on account from Foxfire Supply $210 Memorandum No 52General Journal
38Merchandise Withdrawals by Partners p. 242 ExampleKarl Koehn, partner, withdrew merchandise for personal use, $ Memorandum No 53General Journal