1. LESSON 9-1 Journalizing Purchases Using a Purchases Journal
4/25/2017
LESSON 9-1
Journalizing Purchases Using a Purchases Journal

2. Merchandising Businesses
A business that purchases and sells goods is called a merchandising business
Goods that a business purchases to sell are called merchandise
A merchandising business that sells to those who use or consume the goods is called a retail merchandising business
A business that buys and resells merchandise to retail merchandising businesses is called a wholesale merchandising business
A merchandising business has additional accounts on the balance sheet and income statement to account for the purchase and sale of merchandise.
LESSON 9-1

3. Using Special Journals
A business with a limited number of daily transactions may record all entries in one journal
A business with many daily transactions may choose to use a separate journal for each kind of transactions
A journal used to record only one kind of transaction is called a special journal
Purchases journal – for all purchases of merchandise on account
Cash payments journal – for all cash payments
Sales journal – for all sales of merchandise on account
Cash receipts journal – for all cash receipts
General journal – for all other transactions
LESSON 9-1

4. Purchasing Merchandise
The price a business pays for goods it purchases to sell is called cost of merchandise
For a business to make a profit:
Selling price of merchandise >Cost of merchandise
Markup is the amount added to the cost of merchandise to establish the selling price
Revenue earned from sale of merchandise includes both the cost and markup
Only the markup increases the capital of a business
A merchandising business also buys supplies and other assets to use in the business. A business that sells these is called a vendor
LESSON 9-1

5. PURCHASING MERCHANDISE
page 236
The account used for recording the cost of merchandise is titled Purchases
Cost account
Temporary account
Cost of merchandise reduces capital
Purchases account increases
by a debit and decreases by a
credit (see figure to right)
LESSON 9-1

6. Purchases on Account
Items bought, such as supplies are not recorded on the purchases account.
A transaction in which the merchandise purchased is to be paid for later is called a purchase on account.
Some business keep a separate general ledger account for each vendor
To avoid a bulky general ledger, the total amount owed to all vendors can be summarized in a single general ledger account.
LESSON 9-1

7. PURCHASES ON ACCOUNT
page 236
A liability account that summarized the amounts owed to all vendors is titled Accounts Payable
Has a normal credit balance
Increases by a credit and decreases by a debit (see figure below)
LESSON 9-1

8. PURCHASES JOURNAL
page 237
A special journal used to record only purchases of merchandise on account is called a purchases journal
Recorded on only one line.
The amount column has to account titles in its heading:
Purchases Dr. and Accts. Pay. Cr
LESSON 9-1

9. PURCHASES JOURNAL
A journal amount column headed with an account title is called a special amount column
Special amount columns are used for frequently occurring transactions.
Using special amount columns eliminates writing general ledger account titles in the Account Title Column.
*Transactions recorded in the purchases journal are purchases on account. If a purchase is made for cash, the transaction is NOT recorded in the purchases journal.*
LESSON 9-1

10. PURCHASE INVOICE
When a vendor sells merchandise to a buyer, the vendor prepares a form showing what has been sold
A form describing the goods sold, the quantity, and the price is known as an invoice.
An invoice used as a source document for recoding a purchase on account transaction is called a purchase invoice.
Lists the quantity, the description, the price of each item and the total amount of the invoice
Provides the information needed for recording a purchase on account
LESSON 9-1

11. PURCHASE INVOICE
page 238 1 4 2 3
1. Stamp the date received and purchase invoice number.
3. Initials of the person who checked the invoice.
2. Place a check mark by each amount.
4. Review the vendor’s terms.
LESSON 9-1

12. PURCHASING MERCHANDISE ON ACCOUNT
A purchase on account transaction increases the amount owed to a vendor.
Increases the purchases account balance and increases the accounts payable account balance
Purchases
Accounts Payable
Increase
Increase
LESSON 9-1

13. PURCHASING MERCHANDISE ON ACCOUNT
page 239
November 2. Purchased merchandise on account from Crown Distributing, $2, Purchase Invoice No. 83. 2 1 3 4
1. Write the date.
2. Write the vendor name.
3. Write the purchase invoice number.
4. Write the amount of the invoice.
LESSON 9-1

14. TOTALING AND RULING A PURCHASES JOURNAL
page 240 1 4 5 3 2 6
1. Rule a single line across the amount column.
4. Add the amount column.
5. Write the total.
2. Write the date.
6. Rule double lines across the amount column.
3. Write the word Total.
LESSON 9-1

15. TERMS REVIEW merchandise merchandising business
page 241
merchandise
merchandising business
retail merchandising business
wholesale merchandising business
corporation
share of stock
capital stock
stockholder
special journal
cost of merchandise
markup
vendor
purchase on account
purchases journal
special amount column
purchase invoice
terms of sale
LESSON 9-1

16. WORK TOGETHER 9-1 pg. 241
Journalizing purchases using a purchases journal
Using the current year, journalize these transactions on page 10 of the purchases journal. Purchase invoices are abbreviated as P.
Transactions:
Oct. 2. Purchased merchandise on account from American Tools, $1, P116.
7. Purchased merchandise on account from Harris Manufacturing, Inc., $ P117
11. Purchased merchandise on account from Keasler Supply, $ P118
Total and rule the purchases journal. (see next slide)
LESSON 9-1

17. Journalizing Purchases Example10
Oct. 2
American Tools
116
1,230.00 7
Harris Manufacturing, Inc.
117
480.00
780.00
Keasler Supply
118 11 31
TOTAL
4,165.00
LESSON 9-1

18. ON YOUR OWN 9-1 pg. 241
Journalizing purchases using a purchases journal
Complete this activity written on journal provided. Turn in when done.
Using the current year, journalize these transactions on page 11 of the purchases journal. Purchase invoices are abbreviated as P.
Transactions:
Nov. 4. Purchased merchandise on account from Ulman Supply, Inc., $ P149.
9. Purchased merchandise on account from Else Silver Co., $2, P150
18. Purchased merchandise on account from Pratt Paints, $1, P151
Total and rule the purchases journal.
LESSON 9-1

19. AUDIT YOUR UNDERSTANDING
Answer the following questions using Word.
Turn in when done.
What kinds of transactions are recorded in a purchases journal?
For what are special amount columns in a journal used?
Why are there two account titles in the amount column of the purchase journal?
What is the advantage of having a special amount columns in a journal?
LESSON 9-1

20. APPLICATION PROBLEM 9-1
Complete Application Problem 9-1 (page 260) using the aplia online working papers
LESSON 9-1