0. Purchasing Items Needed by a Business
SECTION 15.1
The Purchasing Process
Retail businesses need shopping bags, sales slips, and register receipts. They must also purchase other supplies, equipment, and merchandise. The purchase of the latter is divided into four stages:
requesting needed items
ordering from a supplier
verifying items received
processing the supplier’s invoice
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1. Purchasing Items Needed by a Business
SECTION 15.1
Requesting Needed Items
When a company needs to buy supplies, equipment, or merchandise, a purchase requisition is prepared to request to order the specified items.
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2. Purchasing Items Needed by a Business
SECTION 15.1
Ordering from a Supplier
Information from the purchase requisition is used to write a purchase order. The purchase order contains:
quantity
description
unit price
total cost
supplier’s name and address
date needed
shipping method (optional)
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3. Purchasing Items Needed by a Business
SECTION 15.1
Verifying Items Received
A supplier accepts a purchase order by shipping the items and billing the buyer for them. A shipment includes a packing slip that lists all shipped items. When a shipment arrives:
The buyer unpacks and checks the contents against the packing slip.
The buyer reports discrepancies to the accounting department.
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4. Purchasing Items Needed by a Business
SECTION 15.1
Processing the Supplier’s Invoice
The supplier sends an invoice, or bill, to the buyer containing the terms and the item quantity, description, price, and total cost. The accounting department checks the invoice against the packing slip and purchase order.
If there are no discrepancies, a processing stamp is placed on the invoice and the invoice becomes the source for a journal entry.
Large businesses may use the voucher system for internal control.
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5. Purchasing Items Needed by a Business
SECTION 15.1
Purchases Discounts
The buyer may receive a purchases discount for early payment. If the credit terms listed on the invoice are 2/10, n/30, the buyer can receive a 2% discount if payment is made within 10 days, the discount period.
If the invoice is not paid within 10 days, the buyer must pay the net amount within 30 days.
Glencoe Accounting Unit 4 Chapter 15 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

6. Purchasing Items Needed by a Business
SECTION 15.1
Processing the Supplier’s Invoice
Glencoe Accounting Unit 4 Chapter 15 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

7. Purchasing Items Needed by a Business
SECTION 15.1
The Purchases Accounts
Merchandise bought to sell to customers is recorded in the Purchases account, a temporary account that is classified as a cost of merchandise account. The Purchases account follows the rules of debit and credit for expense accounts. It is
increased by debits,
decreased by credits, and
has a normal debit balance.
Glencoe Accounting Unit 4 Chapter 15 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

8. Analyzing and Recording Purchases on Account
SECTION 15.2
Purchases of Assets on Account
The most important thing a retail business purchases is merchandise to resell. Merchandise can be bought on a cash basis or on account.
Glencoe Accounting Unit 4 Chapter 15 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

9. Analyzing and Recording Purchases on Account
SECTION 15.2
The Accounts Payable Subsidiary Ledger
A business that makes many purchases on credit will set up an accounts payable subsidiary ledger with an account for each creditor or supplier. The individual accounts are summarized in the Accounts Payable general ledger controlling account.
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10. Analyzing and Recording Purchases on Account
SECTION 15.2
The Accounts Payable Subsidiary Ledger Form
The ledger account form has a space for the creditor’s name and address and contains three amount columns:
the Debit column
the Credit column
the Balance column
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11. Analyzing and Recording Purchases on Account
SECTION 15.2
Merchandise Purchases on Account
When a purchase of merchandise on account is recorded, a diagonal line is entered in the Posting Reference column to indicate the credit amount is posted in two places.
First to the Accounts Payable controlling account.
Then to the individual account in the accounts payable subsidiary ledger.
The invoice is then placed in a tickler file according to its due date.
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12. Analyzing and Recording Purchases on Account
SECTION 15.2
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13. Analyzing and Recording Purchases on Account
SECTION 15.2
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14. Analyzing and Recording Purchases on Account
SECTION 15.2
Other Purchases on Account
The following example illustrates the purchase of store equipment on account.
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15. Analyzing and Recording Purchases on Account
SECTION 15.2
Other Purchases on Account
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16. Analyzing and Recording Purchases on Account
SECTION 15.2
Other Purchases on Account
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17. Analyzing and Recording Purchases on Account
SECTION 15.2
Purchases Returns and Allowances
A purchase return occurs when a business returns merchandise for a full credit.
A purchase allowance occurs when a business keeps unsatisfactory merchandise but pays a discounted price.
A debit memorandum is used to notify suppliers of a purchase return or request for purchases allowance.
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18. Analyzing and Recording Purchases on Account
SECTION 15.2
Purchases Returns and Allowances
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19. Analyzing and Recording Purchases on Account
SECTION 15.2
Recording a Purchases Returns and Allowances Transaction
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20. Analyzing and Recording Purchases on Account
SECTION 15.2
Recording a Purchases Returns and Allowances Transaction
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21. Analyzing and Recording Purchases on Account
SECTION 15.2
Posting to General Ledger Accounts Payable Subsidiary Ledger
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22. Analyzing and Recording Cash Payments
SECTION 15.3
Controls over Cash
A business can manage cash payments by following these procedures:
Require proper authorization of all cash payments.
Write checks for all payments.
Use prenumbered checks.
Retain and account for voided checks.
Glencoe Accounting Unit 4 Chapter 15 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

23. Analyzing and Recording Cash Payments
SECTION 15.3
Cash Payment Transactions
Businesses buy needed items on account or with cash. This section discusses how to record several types of cash payment transactions.
Glencoe Accounting Unit 4 Chapter 15 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

24. Analyzing and Recording Cash Payments
SECTION 15.3
Recording Cash Purchase of Insurance
Businesses purchase insurance to protect against losses from theft, fire, and flood. An insurance premium is paid at the beginning of the covered period and is recorded in the Prepaid Insurance asset account.
Glencoe Accounting Unit 4 Chapter 15 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

25. Analyzing and Recording Cash Payments
SECTION 15.3
Recording Cash Purchases of Merchandise
Usually businesses purchase merchandise on account. Sometimes a business buys merchandise for cash.
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26. Analyzing and Recording Cash Payments
SECTION 15.3
Recording Cash Purchases of Merchandise
Glencoe Accounting Unit 4 Chapter 15 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

27. Analyzing and Recording Cash Payments
SECTION 15.3
Recording Cash Payments for Items Purchased on Account
Each day, invoices due for payment are removed from the tickler file. Checks are prepared, signed, and mailed to creditors.
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28. Analyzing and Recording Cash Payments
SECTION 15.3
Other Cash Payments
The shipping terms define if a buyer will be charged for the shipment of goods. Shipping terms are stated as:
FOB destination – the supplier pays the shipping cost
FOB shipping point – the buyer pays the shipping cost.
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29. Analyzing and Recording Cash Payments
SECTION 15.3
Recording Bankcard Fees
Banks charge a bankcard fee for handling bankcard sales slips.
Glencoe Accounting Unit 4 Chapter 15 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.