accounting for purchases and cash payments making accounting relevant we participate in the...

Accounting for Purchases and Cash Payments

Accounting for Purchases and Cash PaymentsMaking Accounting Relevant

We participate in the purchasing of

goods and services daily.

Making Accounting Relevant

We participate in the purchasing of

goods and services daily.

Have you ever wanted to buy something, but the store was out of that item? What effect does the out-of-stock situation have on business revenue?

Have you ever wanted to buy something, but the store was out of that item? What effect does the out-of-stock situation have on business revenue?

Section 1Purchasing Items Needed by a Business

Section 1Purchasing Items Needed by a BusinessWhat You’ll Learn

About the paperwork involved in the

purchasing process.

The purpose of the Purchases

Discounts account.


account and its rules of debit and

credit.

What You’ll Learn

About the paperwork involved in the

purchasing process.


Discounts account.


account and its rules of debit and

credit.

Why It’s ImportantIt is essential that businesses establish

controls and procedures for handling the purchase of assets in a systematic manner because the purchasing process results in a large outflow of cash.

Why It’s ImportantIt is essential that businesses establish

controls and procedures for handling the purchase of assets in a systematic manner because the purchasing process results in a large outflow of cash.

Section 1 Purchasing Items Needed by a Business (cont'd.)


Key Terms purchase requisition

purchase order

packing slip

processing stamp

Key Terms purchase requisition

purchase order

packing slip

processing stamp

purchases discount

discount period

Purchases account

cost of merchandise

purchases discount

discount period

Purchases account

cost of merchandise

The Purchasing Process

The purchase of supplies, equipment,

and merchandise is divided into four

stages:

The Purchasing Process

The purchase of supplies, equipment,

and merchandise is divided into four

stages:

requesting needed items

ordering from a supplier

verifying items received

processing the supplier’s invoice

requesting needed items

ordering from a supplier

verifying items received

processing the supplier’s invoice



Requesting Needed ItemsRequesting Needed Items

A purchase requisition is a written

request that a certain item or items

be purchased.

Pre-numbered, multicopy form.

Approved by the manager of the

department requesting the purchase.

A purchase requisition is a written

request that a certain item or items

be purchased.

Pre-numbered, multicopy form.

Approved by the manager of the

department requesting the purchase.



Ordering from a SupplierOrdering from a Supplier

A purchase order is a written offer to

a supplier to buy certain items.

The purchase order contains:

A purchase order is a written offer to

a supplier to buy certain items.

The purchase order contains:



1. quantity

2. description

3. unit price

4. total cost

1. quantity

2. description

3. unit price

4. total cost

5. supplier’s name and address

6. date needed

7. shipping method (optional)

5. supplier’s name and address

6. date needed

7. shipping method (optional)

Purchases DiscountsPurchases Discounts

Suppliers frequently offer charge

customers a cash discount for early

payment.

Suppliers frequently offer charge

customers a cash discount for early

payment.



1. Merchandise DiscountPurchased X Rate = Discount

1. Merchandise DiscountPurchased X Rate = Discount

2. Amount PaidWithin

Invoice Discount DiscountAmount – Amount = Period

2. Amount PaidWithin

Invoice Discount DiscountAmount – Amount = Period

$2,300 X .02 = $46$2,300 X .02 = $46

$2,300 – $46 = $2,254$2,300 – $46 = $2,254

The Purchases AccountThe Purchases AccountWhen a business buys merchandise

to sell to customers, the cost of the merchandise is recorded in the Purchases account. The Purchases account is a temporary account, classified as a cost of merchandise account.

When a business buys merchandise to sell to customers, the cost of the merchandise is recorded in the Purchases account. The Purchases account is a temporary account, classified as a cost of merchandise account.



Debit+

Increase SideNormal Balance

Credit–

Decrease Side

Purchases

Check Your UnderstandingCheck Your Understanding

Explain the steps in the

purchasing process from the

request for merchandise to the

payment of the invoice.

Explain the steps in the

purchasing process from the

request for merchandise to the

payment of the invoice.



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