2. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. SALES AND PURCHASES Chapter 9

3. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Companies who buy and sell goods are known as _____________________. Merchandising businesses can be a __________ or a ______ business. A wholesale business, sometimes referred to as a __________________________, buys goods from manufacturers and sells them to retailers. A _____________________ sells goods directly to consumers (the public). Companies Who Buy and Sell Goods

4. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. __________________ consists of a stock of goods that a company buys and intends to resell at a profit. The __________________ requires that companies take a physical inventory of merchandise on hand and then attach a value to it. The __________________ requires that companies keep continuous records of inventories by recording all transactions, so that at any given time they know what they should have on hand and the current cost. Nature of Merchandising Business

5. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective

6. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. When merchandising firms record sales of merchandise, they use the _____________________. ___________ are prepared in multiple form to serve as evidence for recording the sales transaction. An invoice is sent to various parties: ___________________ Sales Transactions

7. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Practice Exercise 1

8. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective

9. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Sales transactions can be recorded two ways: Directly into the _________________ Via a special journal called the _________________ Specific Accounts for Merchandising Firms

10. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Recording in the General Journal Five sales transactions need to be recorded for Whitewater Raft Supply for August 9–10

11. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Sales transactions in the fundamental accounting equation

12. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. If inventory is returned due damage or being defective, the _________________________________ handles these types of transactions. This is a _______________ used to record the physical return of merchandise. A _______ is a ____________________. An ______ is a reduction from the ____________ based on an agreed-upon _______. A _______________ is a written statement indicating a seller’s willingness to reduce the amount of a buyer’s _______. Sales Returns and Allowances

13. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. For transaction that has a sales tax levied on them, sales tax is charged to the ______ and recorded at the ______ ______. Computed sales tax is recorded in the ______________ ______________. The customer owes the amount for the sale plus the applicable sales tax. Sales Transactions Involving Sales Tax

14. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. When merchandise is returned to a retail store, the sales tax originally charged is ____________. Sales Returns Involving Sales Tax

15. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. (a) Transaction (a) – May 1, David Fly Fishing Outfitters sold merchandise on account to B. Hill for $1,550 plus $124 in sales tax. (b) Transaction (b) – May 5, B. Hill returned the merchandise and David Fly Fishing Outfitters issued credit memorandum no. 1152.

16. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Sales transactions are recorded into the ___________ (debit to Accounts Receivable; credit to Sales). To maintain a detail list of customers that have made purchases on account, a business should have an __________________________________. The ledger lists all ___________, in alphabetical order or by account number, with the current balance. The balance of the Accounts Receivable account should _____ the total of all the _________________________ account balances. The Accounts Receivable Ledger This means that BOTH Accounts Receivable (in the GL) and the accounts receivable ledger are posted to.

17. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Accounts Receivable account (in the GL) is referred to as a __________________. The accounts receivable ledger is a special type of ledger, called a __________________. The Accounts Receivable Ledger

18. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. In a manual system, the ______ denotes that the transaction has been posted to the ______. A ______ denotes that the transaction has been posted to the ______ ______.

19. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Practice Exercise 2 9–19

20. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

21. Learning Objective

22. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Schedule of Accounts Receivable

23. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Subsidiary ledger Controlling account Listed (alphabetical) by customer name or account number Listing of customers’ account balances Proof

24. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The __________________ is used strictly to record the cost of merchandise _____ for _____. A purchase order, often referred to as a “_____”, is a company’s _____ _____ to buy certain goods. A seller sends an ________ to the buyer to show acceptance of the purchase request. Purchase Transactions

25. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Terms means the _____ of _____ “2/10, n/30” means that if the _____ pays the amount due within 10 days, they will receive a 2 percent _____, otherwise the _____ _____ is due in 30 days. Terms of “net 30 days” means that there is _____ _____ _____ offer; the _____ _____ is due in 30 days.

26. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Practice Exercise 3

27. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 9–27

28. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

29. Learning Objective

30. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Purchase Transactions in the General Journal Purchase transaction using the general journal for Whitewater Raft Supply for the month of August.

31. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. On occasion a business will return merchandise or request an allowance for such reasons as damaged merchandise. The ______________________________________ handles these types of transactions. Purchase Returns and Allowances

32. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Companies use ________________ to record separately delivery costs for incoming merchandise. Freight costs are expressed as _____ (free on board)… ________ (the ______ location) If the seller assumes the entire cost of transportation, without any reimbursement from the buyer, the terms are ______ _____________. ________ point (the ______ location) If the buyer is responsible for paying the freight cost, the shipping terms are called ______ _____________ _________. Freight Charges Unless the title to the goods is expressly reserved by the _____, whoever pays the _____ charges customarily have _____to the goods.

33. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. FOB destination and FOB shipping point

34. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. When goods are shipped _____________, the freight charges are not stated; the _____ simply pays the _____________. When goods are shipped _____________, transportation charges are handled one of two ways: The _____ pays the freight charges directly to the _____ _____. The transportation and shipping costs may be listed _____ on the _____. Freight Charges

35. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

36. Any freight charges incurred when buying other assets, such as supplies or equipment, should be debited to the respective asset accounts. For example, Whitewater Rafting Supply bought display cases on account from Carter Cabinet Shot at a cost of $2,700 plus freight of $290. Freight Charges Other Than Merchandise

37. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. _________________________________ is a _______ _______ It consists of _______ _______ for all _______, listed either alphabetically or in numerically. When all postings are up-to-date, the _______ of the _______ _______ account should _______ the _______ of all of the creditors’ individual account balances. The Accounts Payable Ledger

38. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. In a computerized environment, the software will automatically post a transaction to the _______ _______ account (the _______ account) and _______ account in the _______ _______ _______.

39. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Practice Exercise 4

40. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

41. Learning Objective

42. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Schedule of Accounts Payable

43. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Internal Control of Purchases

44. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Practice Exercise 5

45. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

47. Learning Objective

48. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Based on the _____________inventory system, let’s review two August sales transactions for Whitewater Raft Supply. Perpetual Inventory System

49. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The sales portion of the transaction is recorded the same under either (periodic or perpetual) inventory method. Using the ________ ________ system, an entry to _____ _____ of _____ _____, for the cost of the inventory) is made as well as a _____ to _____ _____ (to reduce inventory sold).

50. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Sales Returns and Allowances (a) Transaction (a) – August 14, Whitewater Raft Supply sold merchandise on account to Marty’s Fly Fishing Adventures for $1,594 and recorded the sale in the general journal. Cost of inventory sold is $1,354.90 (b) Transaction (b) – September 5, Marty’s Fly Fishing Adventures returned $254 worth of merchandise having a cost of $215.90. Whitewater Raft Supply issued credit memorandum no. 1069.

51. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Practice Exercise 6

52. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

54. Learning Objective

55. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Purchase Transactions As learned earlier, Purchases and Freight In accounts record transactions involving purchases. Let’s look at two August transactions of Whitewater Raft Supply.

56. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Using the ________ ________ system, all transaction related to the purchase of inventory are recorded in the ________ ________ account.

57. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Purchase Returns and Allowances (a) Transaction (a) – September 2, bought merchandise on account from Dana Manufacturing Company for $830. (b) Transaction (b) – September 8, Whitewater Raft Supply returned some merchandise and received credit memorandum no. 1629 from Dana Manufacturing Company in the amount of $270.

58. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Periodic Inventory System versus Perpetual Inventory System

59. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Some companies record transactions directly into the general journal. Some opted to record sales and purchases into a special journal. _________ _________ are books of original entry. _____ _____ (S) is used to record sales of merchandise ______ on ______ only. _____ _____ (P) is used to record purchases of merchandise ______ on account for ______ only. Special Journals

60. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. _____ _____ _____ (CR) is used to record all transactions that include a ______ to ______ (such as ______, ______, or ______ ______ on a ______ ______ ). _____ _____ _____ (CP) is used to record all transactions that include a ______ to ______ (such as ______ by ______ or ______ ______ ______ ). Special Journals

61. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Practice Exercise 7

62. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

63. Learning Objective

64. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The _______ _______ records sales of _______ on _______ _______. This specialized type of transaction calls for _______ to _______ _______ and _______ to ______. Recall the sales transactions introduced for Whitewater Raft Supply for August: The Sales Journal

65. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Because one column is labeled “Accounts Receivable Dr. /Sales Cr.” ____ transaction requires only a ____ line. NOTE: the ____ ____ is a book of original entry. DO NOT ________ the transaction in the ____ ____.

66. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Posting from the Sales Journal

67. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Sales Journal with Sales Tax Payable When recording sales transactions that involve sales tax, the sales journal will need to include three columns:

68. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objective

69. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Purchases Journal (Three-Column)

70. © 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Posting from Purchases Journal to General Ledger