1. Chapter 10 Journalizing Purchases and Cash Payments
Using Special Journals

2. Partnerships
Encore Music, the business described in Cycle 1, is a small business owned by one person
Proprietorship
A business in which two or more persons combine their assets and skills is called a partnership
As in proprietorships, reports and financial records of the business are kept separate from personal records

3. 10-1 Journalizing Purchases Using a Purchases Journal

4. The Business - Omni Import
A business that purchases and sells goods is called a merchandising business
A merchandising business that sells to those who use or consume the goods is called a retail merchandising business
Differs from a service business by actually selling merchandise, a tangible product

5. 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 transaction
A journal used to record only one kind of transaction is called a special journal

6. Using Special Journals
Omni Imports uses five journals to record daily transactions:
Purchases journal: For all purchases of merchandise on account
Cash payments journal: For all cash payments

7. Using Special Journals
Sales Journal: For all sales of merchandise on account
Cash Receipts Journal: For all cash receipts
General Journal: For all other transactions

8. Purchasing Merchandise
The price a business pays for goods it purchases to sell is called cost of merchandise
The selling price of merchandise must be greater than the cost of the merchandise for the business to make a profit

9. Purchasing Merchandise
The amount added to the cost of merchandise to establish the selling price is called markup
Revenue earned from the sale of merchandise includes both the cost and markup
Only the markup increases capital

10. Purchasing Merchandise
Accounts for the cost of merchandise are kept in a separate division of the general ledger
The cost of merchandise division is shown on p. 219

11. Purchasing Merchandise
A business from which merchandise is purchased or supplies or other assets are bought is called a vendor
The account used for recording the cost of merchandise is titled Purchases

12. Purchasing Merchandise
Purchases is classified as a cost account because it is in the cost of merchandise division in the chart of accounts
Because the cost of merchandise reduces capital when merchandise is purchased, it has a normal debit balance

13. Purchases on Account
The cost account, Purchases, is used only to record the cost of merchandise purchased
Supplies, other items are not recorded here
A transaction at which the merchandise purchased is to be paid at a later date is known as a purchase on account

14. Purchases on Account
Most businesses will keep separate ledgers for each vendor
The total amount owed to all vendors can be summarized in a single general ledger account

15. Purchases on Account
A liability account that summarizes all amounts owed to vendors is Accounts Payable
The liability account, Accounts Payable, has a normal credit balance

16. Purchases Journal
Omni uses a special journal to record only purchases of merchandise on account
Purchases Journal
Purchases journal records on only one line
Amount column has two headings
p. 224
All purchases on account involve a debit to Purchases and a credit to Accounts Payable

17. Purchase Invoice
When a vendor sells merchandise to a buyer, the vendor prepares a form showing what has been sold
Purchase Invoice
This invoice lists the quantity, the description, price of each item and total amount of invoice

18. Purchasing Merchandise on Account
Purchased merchandise on account from Crown Ltd., $ Purchase Invoice No. 83.

19. Totaling and Ruling a Purchases Journal
Omni always rules its purchases journal at the end of each month, even if the page for the month is not full

20. Totaling and Ruling a Purchases Journal
Steps
Rule a single line across the amount column under the last entry
Write the date in date column
Write “Total” in account credited column
Add the amount column / verify
Write the total below the single line
Rule double lines under the total

21. 10-2 Journalizing Cash Payments Using a Cash Payments Journal

22. Cash Payments Journal
A special journal used to record only cash payment transactions is called a cash payments journal
Amount columns
Cash
Accounts Payable
General (used for amounts that don’t occur frequently)

23. Cash Payments Journal Source document is usually check issued
For payments not using a check, source document is memorandum

24. Purchasing Merchandise for Cash
Purchased merchandise for cash, $575. Check No. 290.

25. Buying Supplies for Cash
Paid cash for office supplies, $ Check No 292
Supplies are not recorded in purchases account b/c they aren’t intended for sale
Increases office supplies account balance, decreases cash account balance
Same steps as journalizing purchasing merch for cash

26. Cash Payment on Account
Paid cash on account to Pacific Imports, $ , covering Purchase Invoice No Check No 294.

27. Cash Payment of an Expense
Paid cash for advertising, Check No 296.

28. 10-3 Performing Additional Cash Payments Journal Operations

29. Cash Payment to Replenish Petty Cash
Paid cash to replenish the petty cash fund, $205: office supplies, $35; store supplies, $47; advertising, $92; miscellaneous, $31. Check No 297.

30. Cash Withdrawals by Partners
Assets taken out of a business for the personal use of an owner are known as withdrawals
Cash and Merchandise generally taken out of a merchandising business
Withdrawals reduce the amount of a business’s capital

31. Cash Withdrawals by Partners
Since capital accounts have credit balances, partners’ drawing accounts have normal debit balances
p. 235
Michelle Wu, partner, withdrew cash for personal use, $ Check No 298.

32. Totaling, Proving, and Ruling a Cash Payments Journal to Carry Totals Forward
A journal is proved and ruled whenever a journal page is filled and always at the end of a month
Total debits must equal total credits
After a journal is proved, the journal is ruled in preparation for forwarding to the next page
Example p. 236

33. Starting a New Cash Payments Journal Page
The totals from the previous journal page are carried forward to the next journal page
The total are recorded on the first line of the new page
p. 237 example

34. Totaling, Proving and Ruling a Cash Payments Journal at the End of a Month
Equality of debits and credits in a journal is proved at the end of each month
Example p. 238

35. 10-4 Journalizing Other Transactions Using a General Journal

36. General Journal
Not all transactions can be recorded in special journals
Transactions that can’t be are recorded in a general journal
If a transaction is not recorded in the purchases journal, cash payments journal, sales journal or cash receipts journal - it will be recorded in the general journal

37. Buying Supplies on Account
p. 241 Example
Bought store supplies on account from Foxfire Supply $210 Memorandum No 52
General Journal

38. Merchandise Withdrawals by Partners
p. 242 Example
Karl Koehn, partner, withdrew merchandise for personal use, $ Memorandum No 53
General Journal