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 In your notebooks:  What is the trade discount equation?  What is the purchase discount equation?  What does an invoice amount represent?  What does.

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Presentation on theme: " In your notebooks:  What is the trade discount equation?  What is the purchase discount equation?  What does an invoice amount represent?  What does."— Presentation transcript:

1  In your notebooks:  What is the trade discount equation?  What is the purchase discount equation?  What does an invoice amount represent?  What does “4/15, n/30” indicate?

2 THE PURCHASE JOURNAL: Journalized purchases on account on a purchase journal Debit Purchases Credit AP (with vendor’s name) THE CASH PAYMENTS JOURNAL: 1.Journalized expenses and supplies on a cash payments journal 2.Journalized payments for merchandise with and without Trade discounts on a cash payments journal Use “Purchases” in Account title

3  Cash purchases of merchandise are journalized in the cash payment journal  Purchase discounts is like a grocery store that accepts vendor coupons.  Trade discount equation  list price x trade disc. rate = trade disc. then list price – trade disc. = invoice amount.  Purchase discount equation  purchase invoice amt x purchase disc. rate = purchase disc. then purchase invoice amt. - purchase disc. = cash amount after disc.

4  Petty cash fund  Enables business to pay cash for small expenses without writing check  Errors may be made when making payments from petty cash fund, causing differences between amount recorded and amount actually on hand

5  Must complete a Petty Cash Report to reconcile the actual cash on hand versus the cash that should be in your petty cash fund.  A short amount means that what’s on hand is less than what should be there, and so your replenishment amount needs to be increased  An (over) amount means what you have on hand is more than what you should have, and your replenishment amount need to be decreased.

6 CASH PAYMENTS JOURNALPAGE? DATE ACCT. TITLE CK. NO. POST. REF. GENERAL JOURNAL ACCOUNTS PAYABLE DEBIT PURCHASES DISCOUNT CREDIT CASH CREDIT DEBITCREDIT 2013 11 22 3 1918Supplies- Office31032.33208.6619 20 Advertising Expense 50.00 20 21 Miscellaneous Expense 128.50 21 22 Cash Short and Over 2.17 22 23 November 18: Paid cash to replenish the petty cash fund, $208.66: office supplies, $32.33; advertising, $50.00; miscellaneous, $128.50; cash over, $2.17. Check No. 310..

7  Petty cash over and petty cash short recorded in account titled Cash Short and Over  Temporary account that is closed to Income Summary account at end of fiscal period  Balance can be either debit or credit  Balance usually debit because petty cash fund more likely to be short than over Short recorded in general debit Over recorded in general credit

8  Journal proved and ruled whenever journal page is filled and always at the end of a month  “Carried Forward” on last line of Cash Payments Journal  Single line above column totals, double lines below column totals  Prove debits equal credits underneath journal

9  Once journal is totaled and proved, journal is ruled in preparation for forwarding to next page  “Brought Forward” in Account Title Column  Check mark in Post. Ref. column to show nothing on line needs to be posted  Proof of equality of debits and credits must occur at month’s end  After cash payments journal is totaled and proved at end of month, journal is ruled

10  When do we journalize in the General Journal?  When we are buying anything OTHER THAN MERCHANDISE on account  If transaction is not a cash payment, can’t be in cash payments journal  If transaction is not purchase of merchandise on account, can’t be in purchases journal  IF TRANSACTION CAN’T BE RECORDED IN ONE OF SPECIAL JOURNALS, IT MUST BE RECORDED IN GENERAL JOURNAL

11  Buy supplies on account  Invoice received from vendor, similar to purchase invoice received when merchandise is purchased  Memorandum attached to invoice to assure no mistake is made than that the invoice is for store supplies, NOT purchases  DEBIT Supplies – Store  CREDIT Accounts Payable  Memorandum is source document  Equality of debits and credits checked after each journal entry  When we have a PURCHASE RETURN AND ALLOWANCE

12  Purchase return: Customer doesn’t want to keep merchandise, and is allowed to return for the purchase price  Decreases customer’s accounts payable  Purchases allowance: Customer is discontent with merchandise, so vendor allows customer to keep it and gives a reduced price for the merchandise  Decreases customer’s accounts payable  Source document: Debit Memorandum  Form prepared by customer showing price deduction taken by customer for returns and allowances  Called this because customer records amount as a debit (deduction) to vendor account to show decrease in amount owed  Diagonal line in Post Ref. column to indicate two accounts being impacted (Accounts Payable and Vendor Account)

13  Purchases Returns and Allowances  Account that enables a business to evaluate the effectiveness of its merchandise purchasing activities  This account is credited for the amount of purchases returns or allowances Decrease amount of purchases, so it is a contra account to Purchases account Thus, normal balance of Purchase Returns and Allowances account is a credit

14 GENERAL JOURNAL11 DATE ACCT. TITLE DOC NO. POST. REF. GENERAL JOURNAL DEBITCREDIT 2013 11 22 3028Accounts Payable/Crown DistributingDM 18252.0030 31Purchases Returns and Allowances252.0031 32 33 34 Nov 28. returned merchandise to Crown Distributing, $252.00, Covering Purchase Invoice No. 80. Debit Memorandum No. 78.

15  PRACTICE:  WT 9-4  OYO 9-4  Application problems 9-1 thru 9-5  Mastery Problem

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