CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

LESSON 9-1 - Journalizing Purchases Using a Purchases Journal

Service business vs. merchandising business Service business sells services for a fee – nail salon, attorney Merchandising business purchases and sells goods – t-shirts,

sports equipment Retail merchandising business – sells goods to those who use or

consume the goods (Target, Wal Mart, etc.) Wholesale merchandising business – buys and resells

merchandise to retail merchandising businesses (company that sells merchandise to Target or Wal Mart)

Merchandising business uses many of the same accounts as a service business, but it will have additional accounts for the purchase and sale of merchandise (chart of accounts, pg. 231)

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

Business Structures Sole Proprietorship

Owned by one person – limits resources for the business Corporation – organization with the legal rights of a person and which

many person may own Formed by receiving approval from a state or federal agency Can own property, incur liabilities, and enter into contracts in its own name

Share of stock – a unit of ownership Capital stock – total shares of ownership Stockholder – an owner of one or more shares of a corporation Biggest difference between proprietorship and corporation is capital

accounts Special Journal – used to record only one kind of transaction

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LESSON 9-1

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

PURCHASING MERCHANDISE

Cost of merchandise – price a business pays for goods it purchases

Mark-up – amount added to cost of merchandise to establish selling price Mark-up is needed in order to earn a profit

Vendor – a business from which merchandise or other supplies is bought

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LESSON 9-1

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Purchases – account used for recording the cost of merchandise -cost account (reduces capital) -temporary account

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

PURCHASES ON ACCOUNT

Purchases on account – transaction in which the merchandise purchased is to be paid for later CONCEPT: Historical Cost – actual amount paid for merchandise or

other items bought is recorded Businesses that purchase from many vendors have many accounts for

vendors Accounts Payable summarizes the total amount owed all vendors

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LESSON 9-1

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CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

PURCHASES JOURNAL

Purchases Journal – special journal used to record only purchases of merchandise on account

Special amount column – journal amount column headed with an account title Special amount columns are used for frequently occurring transactions Eliminates writing general ledger account titles in the Account Title

column and saves time

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LESSON 9-1

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CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 9-1

2

1. Stamp the date received and purchase invoice number.

PURCHASE INVOICE – form describing the goods sold, quantity, and price

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3

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page 238

4. Review the vendor’s terms.

3. Initials of the person who checked the invoice.

2. Place a check mark by each amount.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 9-1

PURCHASING MERCHANDISE ON ACCOUNT

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3 4

page 239

November 2. Purchased merchandise on account from Crown Distributing, $2,039.00. Purchase Invoice No. 83.

1. Write the date. 2. Write the vendor name. 3. Write the purchase invoice number. 4. Write the amount of the invoice.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 9-1

TOTALING AND RULING A PURCHASES JOURNAL

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page 240

1

6 1. Rule a single line across the amount column.

2. Write the date. 3. Write the word Total.

4. Add the amount column. 5. Write the total. 6. Rule double lines across

the amount column.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 9-1

TERMS REVIEW

merchandise merchandising business retail merchandising

business wholesale

merchandising business corporation share of stock capital stock stockholder

special journal cost of merchandise markup vendor purchase on account purchases journal special amount column purchase invoice terms of sale

page 241

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

LESSON 9-2

Journalizing Cash Payments Using a Cash Payments Journal

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

CASH PAYMENTS JOURNAL

Cash Payments Journal – special journal used to record only cash payment transactions

Cash discount – deduction that a vendor allows on the invoice amount to encourage prompt payment Purchase discount – cash discount on purchases taken by a

customer

General amount column – amount column that is not headed with an account title (ex. Monthly rent)

Source document is usually a check

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LESSON 9-2

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CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 9-2

CASH PAYMENT OF AN EXPENSE page 243

November 2. Paid cash for advertising, $150.00. Check No. 292.

1. Write the date. 2. Write the account title. 3. Write the check number. 4. Write the debit amount. 5. Write the credit amount.

1 2 3 4 5

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 9-2

BUYING SUPPLIES FOR CASH page 243

November 5. Paid cash for office supplies, $94.00. Check No. 293.

1. Write the date. 2. Write the account title. 3. Write the check number. 4. Write the debit amount. 5. Write the credit amount.

1 2 3 4 5

Supplies are not recorded in the Purchases account because supplies are not intended for sale.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 9-2

CASH PAYMENTS FOR PURCHASES page 244

November 7. Paid Cash to XYZ Company for merchandise with a list price of $1,500.00, less a 60% trade discount. Check No. 301.

1. Write the date. 2. Write the account title. 3. Write the check number. 4. Write the debit amount. 5. Write the credit amount.

1 2

3 4 5 100% - 60% discount= 40% $1500.00 x 40% = $600.00

List price – retail price listed in a catalog or on website Trade discount – reduction in the list price granted to customers

Invoice amount

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

CASH PAYMENTS ON ACCOUNT WITH PURCHASES DISCOUNTS

2/10, n/30 – common term of sale read two ten, net thirty Two ten means that 2% of the invoice amount may be deducted if

the invoice is paid within 10 days of the invoice date Net Thirty means that the total invoice amount must be paid within

30 days

Purchases discount – general ledger account used to record discounts on purchases Contra account – account that reduces a related account

Balance is opposite the balance of the related account (Purchases – normal debit balance; Purchases discount – normal credit balance

Cash discounts must be recorded because they decrease the recorded invoice amount

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LESSON 9-1

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 9-2

CASH PAYMENTS ON ACCOUNT WITH PURCHASES DISCOUNTS page 245

November 8. Paid cash on account to Gulf Craft Supply, $488.04, covering Purchase Invoice No. 82 for $498.00, less 2% discount, $9.96. Check No. 302.

1. Write the date. 2. Write the account title of the vendor. 3. Write the check number. 4. Write the debit amount. 5. Write the credit amount.

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4

6. Write the credit amount.

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CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 9-2

CASH PAYMENTS ON ACCOUNT WITHOUT PURCHASES DISCOUNTS page 246

November 13. Paid cash on account to American Paint, $2,650.00, covering Purchase Invoice No. 77. Check No. 303.

1. Write the date. 2. Write the vendor account title. 3. Write the check number. 4. Write the debit amount. 5. Write the credit amount.

1 2 3

4 5

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

LESSON 9-3

Performing Additional Cash Payments Journal Operations

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

PETTY CASH REPORT

Errors may be made when making payments from a petty cash fund

Cash short – petty cash amount on hand is less than a recorded amount

Cash over - petty cash amount on hand is greater than a recorded amount

Cash Short and Over – temporary account to record petty cash short and over

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LESSON 9-1

Cash Short and Over Debit Credit Cash short Cash over

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 9-3

PETTY CASH REPORT

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6. Write the actual amount of cash on hand. 8

4

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3

6 5 7

1. Write the date and custodian name.

2. Write the fund total. 3. Summarize petty cash

payments. 4. Calculate and write the

total payments. 5. Calculate and write the

recorded amount on hand.

7. Subtract the actual amount on hand from the recorded amount on hand and write the amount.

8. Write the total of the replenish amount.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 9-3

REPLENISHING A PETTY CASH FUND

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1. Date 2. Account titles 3. Check number 4. Expense amounts 5. Cash short as a debit;

cash over as a credit

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4

6. Total cash payment

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 9-3

TOTALING, PROVING, AND RULING A CASH PAYMENTS JOURNAL PAGE TO CARRY TOTALS FORWARD

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page 250

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6 1. Rule a single line.

2. Write the date.

3. Write the words Carried Forward in the Account Title column.

4. Place a check mark in the Post. Ref. column.

5. Write each column total.

6. Rule double lines.

A journal is proved and ruled whenever a page is full and always at the end of the month. You must verify that total debits = total credits.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 9-3

STARTING A NEW CASH PAYMENTS JOURNAL PAGE

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page 251

1. Write the journal page number. 2. Write the date. 3. Write the words Brought Forward in the Account Title column. 4. Place a check mark in the Post. Ref. column. 5. Record the column totals.

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CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 9-3

TOTALING, PROVING, AND RULING A CASH PAYMENTS JOURNAL AT THE END OF A MONTH

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page 252

1. Rule a single line. 2. Write the date. 3. Write the word Totals in the Account Title column. 4. Write each column total. 5. Rule double lines.

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5

You must verify that total debits = total credits.

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 9-3

TERMS REVIEW

cash short cash over

page 253

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

LESSON 9-4 - Journalizing Other Transactions Using a General Journal

Not all transactions can be recorded in special journals These entries are recorded in the general journal (ex. Buying

supplies on account)

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 9-4

MEMORANDUM FOR BUYING SUPPLIES ON ACCOUNT page 254

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 9-4

BUYING SUPPLIES ON ACCOUNT

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page 255

November 6. Bought store supplies on account from Gulf Craft Supply, $210.00. Memorandum No. 52.

1. Write the date. 5. Write the account title and vendor name. 2. Write the account title.

6. Place a diagonal line in the Post. Ref. column.

3. Write the memorandum number.

7. Write the credit amount. 4. Write the debit amount.

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CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

DEBIT MEMORANDUM FOR PURCHASES RETURNS AND ALLOWANCES

Purchase 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 Merchandise is damaged but still usable – reduced price

Debit memorandum – form prepared by the customer showing the price deduction taken by the customer for returns and allowances (source document – objective evidence) Customer records the amount as a debit (deduction) to the vendor account

to show decrease in amount owed

Purchase Returns and Allowances – decreases amount of purchases Contra account to Purchases – normal credit balance

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LESSON 9-1

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 9-4

DEBIT MEMORANDUM FOR PURCHASES RETURNS AND ALLOWANCES page 256

CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 9-4

4. Write debit memorandum number.

November 28. Returned merchandise to Crown Distributing, $252.00, covering Purchase Invoice No. 80. Debit Memorandum No. 78.

JOURNALIZING PURCHASES RETURNS AND ALLOWANCES page 257

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1. Write the date. 5. Write the amount. 2. Write the account title and

vendor name. 6. Write Purchases Returns and Allow. 3. Place a diagonal line in the

Post. Ref. column. 7. Write the amount.

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CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning

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LESSON 9-4

TERMS REVIEW

purchases return purchases allowance debit memorandum

page 258