1. Purchases and Cash Payments
Chapter 10
Purchases and Cash Payments
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

2. Learning Objective 1 Recording and posting purchase transactions LO-1
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3. Purchase Order LO-1 Freight 50 $2,650 November 30, 2009
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

4. Invoice Received with Inventory
Record the purchase
LO-1
Freight
50.00
$ 2,650.00
11/30/2009
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

5. Record Purchases
LO-1
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6. Purchases Account
Costs that are directly related to bringing merchandise into the store for resale
Classified as Cost account
Debit balance
Reported on income statement
LO-1
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7. Net Purchases
Purchases -Purchases Returns & Allowances -Purchases Discounts Net Purchases
LO-1
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

8. Freight F.O.B. destination F.O.B. shipping point
Seller pays shipping charges
Legal title passes to buyer when goods reach their destination
F.O.B. shipping point
Buyer pays shipping charges
Legal title passes to buyer when goods are shipped
LO-1
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

9. Freight-in Account Records freight paid to have inventory shipped in
Cost account
Debit balance
Reported on income statement
LO-1
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10. Learning Objective 2
Recording to the accounts payable subsidiary ledger
LO-2
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11. Accounts Payable Subsidiary Ledger
Book or file that contains the names of creditors and amounts owed from purchases on account
Normal credit balance
Accounts payable is controlling account
LO-2
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

12. Making Purchases
Purchase Requisition- Form used within a business by requesting dept. asking purchasing dept. to buy certain goods.
Purchase Order- Form filled out by purchasing dept. giving a seller authority to ship goods to a buyer.
Receiving Report- Form used to notify appropriate people of ordered goods received along with quantities and specific condition of goods.
LO-2
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

13. Learning Objective 3
Preparing, journalizing, and posting a debit memorandum
LO-3
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14. Debit Memorandum
Paper issued by a customer to a seller indicating that a return or allowance has occurred
LO-3
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15. Debit Memorandum Record the return of inventory to the vendor LO-3
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16. Record Purchases Returns
LO-3
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

17. Purchases Returns & Allowances Account
Records a decrease to a buyer’s costs
Contra-cost account
Credit balance
Reported on income statement
LO-3
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

18. Purchases Discount Account
Records discounts taken
Contra-cost account
Credit balance
Reported on income statement
Record the payment of the invoice on December 4
(within the discount period)
LO-3
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

19. Record Payment of Invoice
LO-3
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20. Learning Objective 4 Recording and posting cash payment transactions
LO-4
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21. Sample Cash Payment Transactions
LO-4
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

22. Sample Cash Payment Transactions
Partial General Ledger
Accounts
Payable 113
Cash 111
Dr.
Cr.
Dr.
Cr.
6/1 GJ 1 5,000
6/1 GJ
6/3 GJ 1 2,000
6/3 GJ 1 8,000
6/3 GJ
6/3 GJ ,000
6/5 GJ
6/5 GJ 1 2,000
6/5 GJ
2,400
8,000
7, ,892
5,600
5,088
Purchases
Discount 512
Prepaid
Insurance 116
Dr.
Cr.
Dr.
Cr.
6/5 GJ
6/1 GJ 8
500
LO-4
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

23. Learning Objective 5 Preparing a schedule of accounts payable LO-5
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

24. Schedule of Accounts Payable
Proof that the sum of the accounts payable subsidiary ledger is equal to the controlling account
Only creditors owed a balance appear in the schedule
LO-5
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

25. Problem 10A-3 Putting it all together LO-1,2,3,4,5
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

26. Problem 10A-3
Page 1
LO-1,2,3,4,5
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

27. Problem 10A-3
Page 2
LO-1,2,3,4,5
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

28. Problem 10A-3
Page 3
LO-1,2,3,4,5
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29. Accounts Payable Subsidiary Ledger
Alvin Co.
Henry Co.
Bal. 1,200
300
Bal. 600
Bal 1,200
Bal 300
Soy Co.
Xon Co.
400
Bal. 800
1,400
Bal. 1,400
Bal 400
Bal 0
LO-1,2,3,4,5
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

30. Schedule of Accounts Payable
Jones’ Computer Center
Schedule of Accounts Payable
May 31, 20XX
Alvin Co. $1,200
Henry Co. 300
Soy Co. 400
Total Accounts Payable $1,900
LO-1,2,3,4,5
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

31. Learning Objective 6
Journalizing transactions for a perpetual accounting system
LO-6
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32. Perpetual Inventory System
Recording purchase of inventory: Merchandise Inventory XXX Accounts Payable XXX
LO-6
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33. Perpetual Inventory System
Recording purchase returns & allowances: Accounts Payable XXX Merchandise Inventory XXX
LO-6
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

34. Perpetual Inventory System
Recording purchase discounts: Accounts Payable XXX Cash XXX Merchandise Inventory XXX
LO-6
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

35. Perpetual Inventory System
Recording freight charges paid for inventory: Merchandise Inventory XXX Cash XXX
LO-6
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36. Perpetual Inventory System
Revenue Account
Recording sales: Accounts Receivable XXX Sales XXX Cost of Goods Sold XXX Merchandise Inventory XXX
Cost Account
LO-6
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

37. Perpetual Inventory System
Recording sales returns & allowances Sales Returns & Allowances XXX Accounts Receivable XXX Merchandise Inventory XXX Cost of goods sold XXX
LO-6
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

38. Perpetual Inventory System
Recording sales discounts: Cash XXX Sales Discounts XXX Accounts Receivable XXX
LO-6
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

39. Problem 10A-5 Putting it all together – perpetual inventory system
LO-6
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40. Problem 10A-5
Page 1
LO-6
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41. Problem 10A-5
Page 2
LO-6
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42. Problem 10A-5
Page 3
LO-6
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43. Problem 10A-5
Page 3
LO-6
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44. Problem 10A-5
Page 4
LO-6
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45. Problem 10A-5
Page 5
LO-6
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46. Special Journals
Sales Journal- journal used to record only sales transactions made on credit.
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

47. Special Journals
Purchases Journal- journal used to record only purchase transactions made on credit.
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

48. Special Journals
Cash Receipts Journal- journal used to record cash received.
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

49. Special Journals
Cash Payments Journal- journal used to record payments of cash.
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

50. End of Chapter 10
© 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater