Chapter 18 Recording Purchases and Cash Payments Using Special Journals Part I

Corporation An organization with the legal rights of a person and which may be owned by many persons. Formed by receiving approval from a state or federal agency.

Share of Stock Each unit of ownership in a corporation.

Capital Stock Total shares of ownership in a corporation.

Special Journals A journal used to record only one kind of transaction. Using these journals allows the work of journalizing to be divided among several accounting clerks.

Four Special Journals Purchases Journal – for all purchases on account Cash Payments Journal – for all cash payments Sales Journal – for all sales on account Cash Receipts Journal – for all cash receipts

Purchases Journal The amount on each line of a purchases journal is posted as a credit to the named vendor account in the accounts payable ledger. At the end of each month, a purchases journal is totaled, ruled and the totals are posted to the Purchases and Accounts Payable.

Cash Payments Journal Used to record only cash payments. Used to record purchases paid by cash.

List Price A business’ printed or catalog price.

Trade Discount A reduction in the list price granted to customers. Used to quote different prices for different quantities purchased without changing catalog or list prices.

Cash Discount A deduction that a vendor allows on the invoice amount to encourage prompt payment. Usually written as 2/10, n/30

Purchases Discount A cash discount on purchases taken by a customer. When taken, the customer pays less cash than the invoice amount previously recorded in the purchases account. Recorded in the account Purchases Discount. Purchases Discount DebitCredit Normal DecreaseIncrease

Petty Cash An amount of cash on hand and used for small payments.

Cash Short A petty cash on hand amount that is less than a recorded amount.

Cash Over A petty cash on hand amount that is more than a recorded amount. Account used for both is Cash Short and Over – A temporary account. Cash Short and Over Debit Credit Increase cash short Increase cash over

Chapter 18 Recording Purchases and Cash Payments Using Special Journals Part II

General Journal A journal with two amount columns in which all kinds of entries can be recorded. Has only a debit and credit amount column. Can be used for any journal entry.

Purchases Return Credit allowed for the purchase price of returned merchandise, resulting in a decrease in the customer’s accounts payable.

Purchases Allowance Credit allowed for part of the purchase price of merchandise that is not returned, resulting in a decrease in the customer’s accounts payable.

Purchases Returns and Allowances DebitCredit Normal Balance Decrease Increase

Journalizing Buying Supplies on Account Supplies are for company use and are not to be sold to customers. Therefore, when supplies are purchased they are recorded in the general journal, not the purchases journal.

Debit Memorandum A form prepared by the customer showing the price deduction taken by the customer for returns and allowances. May be used as a source document.