1. Accounting 3 Chapter 18 Section 2

2. Cash Payments Journal This is a journal used only to record cash payment transactions. (If it is not a check, is does not belong here) This is a journal used only to record cash payment transactions. (If it is not a check, is does not belong here) Several of the columns used in the expanded journal (Accounting 2) are used here. Several of the columns used in the expanded journal (Accounting 2) are used here. A new column is for the Purchases Discount Credit special column. A new column is for the Purchases Discount Credit special column.

3. Journalizing Cash Payments for Expenses Cash payments for expenses are handled the same as Accounting 2. Cash payments for expenses are handled the same as Accounting 2. The General Debit and Cash Credit columns are used. The General Debit and Cash Credit columns are used. Checks are the only source document used here, so you do not have to enter C in the check no. column. Checks are the only source document used here, so you do not have to enter C in the check no. column. Transaction Example: March 1. Paid cash for rent, $4,000.00. Check No. 214. Transaction Example: March 1. Paid cash for rent, $4,000.00. Check No. 214. Visual steps on next slide. Visual steps on next slide.

4. Cash Payments Journal Page ___ DateAccount Title Post Ref. GENERAL DEBITCREDIT Accts Pay Debit Purch. Disc. Credit Cash Credit Ck No. 5 Mar1Rent Expense214 4 0 0 0 00 4 0 0 0 00

5. Discounts Introductory Vocabulary Introductory Vocabulary –List Price- A business’s printed or catalog price. –Trade Discount- A reduction in list price granted to some customers. –Cash Discount- A deduction that a vendor allows on the invoice amount to encourage prompt payment. –Purchases Discount- A cash discount on purchases taken by a customer.

6. Trade Discounts A trade discount means that the customer pays less than the printed price. A trade discount means that the customer pays less than the printed price. If a trade discount is given, only the invoice amount (the price actually paid) is journalized. If a trade discount is given, only the invoice amount (the price actually paid) is journalized. Calculation example: Calculation example: List price: $1,500 Trade Discount Rate: 60% Trade Discount= $1,500 x 60% = $900 (LP)$1,500-(TD)$900=$600 $600 is the invoice amount and is the amount journalized.

7. Journalizing Cash Payments for Cash Purchases These are journalized the same as cash payments for expenses except the purchases account is debited. These are journalized the same as cash payments for expenses except the purchases account is debited. Example Transaction: March 7. Purchased merchandise for cash, $600.00. Check 223. Example Transaction: March 7. Purchased merchandise for cash, $600.00. Check 223. (This is a continuation of the previous slide’s example) –Visual steps on next slide.

8. Cash Payments Journal Page ___ DateAccount Title Post Ref. GENERAL DEBITCREDIT Accts Pay Debit Purch. Disc. Credit Cash Credit Ck No. 5 Mar7Purchases2236 0 0 00 6 0 0 00

9. Cash and Purchases Discounts A cash discount is stated as a percentage deducted from the invoice amount for prompt payment. A cash discount is stated as a percentage deducted from the invoice amount for prompt payment. If a cash discount is available, a term of sale may look like this: 2/10, n/30. This is read Two Ten, Net Thirty. If a cash discount is available, a term of sale may look like this: 2/10, n/30. This is read Two Ten, Net Thirty. This means that a 2% discount may be deducted if the invoice is paid within 10 days. Net Thirty means the total invoice must be paid within 30 days. This means that a 2% discount may be deducted if the invoice is paid within 10 days. Net Thirty means the total invoice must be paid within 30 days.

10. Cash and Purchases Discounts Calculation of a Cash or Purchases Discount: Calculation of a Cash or Purchases Discount: –Purchase Invoice Amount: $7,254 –Purchases Discount Rate: 2% –(PIA) $7,254 x (PDR)2%=$145.08 -This amount is the Purchases Discount (PIA) $7,254 – (PD) $145.08 = $7,108.92 -This is the cash amount after discount (CAAD).

11. Journalizing Cash Payments on Account Example Transaction: March 9. Paid cash on account to Pro Golf Company, $7,108.92, covering Purchase Invoice No. 179 for $7,254.00, less 2% discount, $145.08. Check No. 224. Example Transaction: March 9. Paid cash on account to Pro Golf Company, $7,108.92, covering Purchase Invoice No. 179 for $7,254.00, less 2% discount, $145.08. Check No. 224. The PIA is entered into APD, the PD is entered into Purchases Discount Credit, and the CAAD is entered into CC. The PIA is entered into APD, the PD is entered into Purchases Discount Credit, and the CAAD is entered into CC. Visual steps on next slide. Visual steps on next slide.

12. Cash Payments Journal Page ___ DateAccount Title Post Ref. GENERAL DEBITCREDIT Accts Pay Debit Purch. Disc. Credit Cash Credit Ck No. 5 Mar9Pro Golf Company224 7 2 5 4 00 1 4 5 08 7 1 0 8 92 *If there is not a cash discount being utilized, then there will be nothing in the Purchases Discount Credit column and the PIA will be entered into the APD and CC columns.

13. Work Together p. 464 Cash Payments Journal Page ___ DateAccount Title Post Ref. GENERAL DEBITCREDIT Accts Pay Debit Purch. Disc. Credit Cash Credit Ck No. Apr 4 Advertising Expense 334 2 7 5 00 5 Purchases 335 7 9 1 20 16 Blanchard Company 336 4 3 4 6 00 8 6 92 4 2 5 9 08 Assignment on next slide

14. Assignment Do Application 18-2 by hand. Do Application 18-2 by hand. Turn it into Mrs. Middleton. Turn it into Mrs. Middleton. Move on to section 18-3. Move on to section 18-3.