Post on 17-Aug-2020
10-1
College
Accounting
Heintz & Parry20th Edition
Chapter 11
Accounting for Purchases and Cash
Payments
1
Define merchandise
purchases transactions.
• Merchandise acquired for resale
– Must be items for RESALE
• Procedures and documents vary,
depending on the size of the business
• Can be made “on account” or for cash
PURCHASE
REQUISITION
• A form used to request the purchase of
merchandise or other property
• Can be prepared by any authorized
person
• One copy is sent to the purchasing
department
• One copy is sent to the accounting
department
• One copy is kept by the department that
prepared the requisition
PURCHASE
REQUISITION
PURCHASE
ORDER
• A written order to buy goods from a specific vendor (supplier)
• The purchasing department reviews and approves the purchase requisition and prepares a purchase order
– One copy is sent to the vendor to order the goods
– One copy is sent to the accounting department
– One copy is kept in the purchasing department
– Copies may also be sent to the receiving area and to the department initiating the purchase requisition
PURCHASE
ORDER
RECEIVING
REPORT
• Indicates what has been received
• Can be a separate form or created from
the vendor’s purchase invoice
RECEIVING
REPORT
PURCHASE
INVOICE
• Prepared by the seller as a bill for the merchandise shipped
– The seller calls it a sales invoice
– The buyer calls it a purchase invoice
• Before payment is made, the accounting department compares the purchase invoice with the:
– Purchase requisition
– Purchase order
– Receiving report
• Available if the bill is paid within the
discount period
– The buyer calls it a purchase discount
– The seller calls it a sales discount
• Often offered by manufacturers and
wholesalers
• A reduction from the list or catalog price
offered to different classes of customers
• The buyer and seller both record the
transaction at the NET amount (after the
discount)
2
Describe and use
merchandise purchases
accounts and compute
gross profit.
PURCHASES PURCHASES DISCOUNTS
PURCHASES RETURNS
AND ALLOWANCES FREIGHT-IN
PURCHASESDR. CR.
+
Used to record the cost of merchandise purchased.
The account is debited whenmerchandise is purchased.
–
PURCHASESDR. CR.
+
Used to record the cost of merchandise purchased.
–
The account is only creditedduring the closing process.
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DATE DESCRIPTION PR DEBIT CREDIT
Purchases1
2
3
4
5
6
7
8
9
10
11
Example:Made $100 purchase for cash.
100 00
Cash 100 00
Made cash purchase
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DATE DESCRIPTION PR DEBIT CREDIT
Purchases1
2
3
4
5
6
7
8
9
10
11
What if the purchase hadbeen made on account?
100 00
Accounts Payable/Vendor 100 00
Made purchase on account
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DATE DESCRIPTION PR DEBIT CREDIT
Purchases1
2
3
4
5
6
7
8
9
10
11
100 00
100 00
Made purchase on account
We would credit Accounts Payable instead of Cash.
Accounts Payable/Vendor
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DATE DESCRIPTION PR DEBIT CREDIT
Purchases1
2
3
4
5
6
7
8
9
10
11
100 00
100 00
Made purchase on account
The specific supplier is identified.
Accounts Payable/Vendor
PURCHASES RETURNS
AND ALLOWANCES
DR. CR.
+
A CONTRA-PURCHASES account used to record purchases returns and purchases allowances.
The account is credited for the amountof returns and allowances. The account is
debited during the closing process.
–
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DATE DESCRIPTION PR DEBIT CREDIT
1
2
3
4
5
6
7
8
9
10
11
Example:Merchandise purchased on account
for $200 is defective and is returned to the supplier.
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DATE DESCRIPTION PR DEBIT CREDIT
1
2
3
4
5
6
7
8
9
10
11
Accounts Payable is debited.The specific vendor is identified.
Accounts Payable/Vendor 200 00
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DATE DESCRIPTION PR DEBIT CREDIT
1
2
3
4
5
6
7
8
9
10
11
Purchases Returns and Allowances is credited.This account will be shown as a deduction
from the purchases account on the income statement.
200 00
Pur. Returns and Allow. 200 00
Accounts Payable/Vendor
Returned merchandise
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DATE DESCRIPTION PR DEBIT CREDIT
1
2
3
4
5
6
7
8
9
10
11
Example:Now assume the same merchandise is retained
but the supplier grants a price reductionof $45 because of the defects.
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DATE DESCRIPTION PR DEBIT CREDIT
1
2
3
4
5
6
7
8
9
10
11
Accounts Payable is debited to reflect the price reduction.
Accounts Payable/Vendor 45 00
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DATE DESCRIPTION PR DEBIT CREDIT
1
2
3
4
5
6
7
8
9
10
11
Purchases Returns and Allowances is credited.It is the same as the entry for returns!
45 00
Pur. Returns and Allow. 45 00
Accounts Payable/Vendor
Allowance for defective
merchandise
PURCHASES DISCOUNTS
DR. CR.
A CONTRA-PURCHASES account used to record cash discounts allowed on purchases.
The account is credited for the discount granted by the vendor for prompt payment. Theaccount is debited during the closing process.
+–
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DATE DESCRIPTION PR DEBIT CREDIT
1
2
3
4
5
6
7
8
9
10
11
Example:Merchandise is purchased for $100 on
account with credit terms 2/10, n/30, and payment is made within the discount period.
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DATE DESCRIPTION PR DEBIT CREDIT
1
2
3
4
5
6
7
8
9
10
11
Accounts Payable is debitedfor the entire amount
of the purchase.
Accounts Payable/Vendor 100 00
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DATE DESCRIPTION PR DEBIT CREDIT
1
2
3
4
5
6
7
8
9
10
11
Cash is credited forthe actual amount paid, $98
($100 – $2 discount).
Accounts Payable/Vendor 100 00
Cash 98 00
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DATE DESCRIPTION PR DEBIT CREDIT
1
2
3
4
5
6
7
8
9
10
11
Purchase Discounts is creditedfor the discount amount, $2
($100 × 2%).
Accounts Payable/Vendor 100 00
Cash 98 00
Purchases Discounts 2 00
Made payment on account
FREIGHT-IN
DR. CR.
An ADJUNCT-PURCHASES account used to record transportation charges on merchandise
purchases.
The account is debited for transportation charges. The
account is credited during theclosing process.
+ –
• Expressed in FOB (free on board) terms
– FOB shipping point
• The buyer pays for the transportation
charges
• Freight charges are either listed on the
purchase invoice or sent as a separate
freight bill
– FOB destination
• The seller pays for transportation charges
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DATE DESCRIPTION PR DEBIT CREDIT
1
2
3
4
5
6
7
8
9
10
11
Example:Merchandise was purchasedon account for $400 plus freight charges of $38.
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DATE DESCRIPTION PR DEBIT CREDIT
1
2
3
4
5
6
7
8
9
10
11
Purchases is debited only for the cost of the merchandise.
Purchases 400 00
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DATE DESCRIPTION PR DEBIT CREDIT
1
2
3
4
5
6
7
8
9
10
11
Freight-In is debitedfor the transportation costs.
Purchases 400 00
Freight-In 38 00
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DATE DESCRIPTION PR DEBIT CREDIT
1
2
3
4
5
6
7
8
9
10
11
Accounts Payable is credited forthe entire purchase price(merchandise + freight).
Purchases 400 00
Freight-In 38 00
Accounts Payable/Vendor 438 00
Made purchase on account
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DATE DESCRIPTION PR DEBIT CREDIT
1
2
3
4
5
6
7
8
9
10
11
What if the freight charges wereon a separate bill from the transportation company?
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DATE DESCRIPTION PR DEBIT CREDIT
1
2
3
4
5
6
7
8
9
10
11
Purchases is again debited for the cost of the merchandise.
Purchases 400 00
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DATE DESCRIPTION PR DEBIT CREDIT
1
2
3
4
5
6
7
8
9
10
11
Accounts Payable is credited forthe amount due to the supplier.
Purchases 400 00
Accounts Payable/Vendor 400 00
Made purchase on account
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DATE DESCRIPTION PR DEBIT CREDIT
1
2
3
4
5
6
7
8
9
10
11
A separate journal entry is madeto record the freight charges.
Purchases 400 00
Accounts Payable/Vendor 400 00
Made purchase on account
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purchase
DATE DESCRIPTION PR DEBIT CREDIT
1
2
3
4
5
6
7
8
9
10
11
Purchases 400 00
Accounts Payable/Vendor 400 00
Made purchase on account
Freight-In 38 00
38 00Accounts Payable/Vendor
Freight charges on
Accounts Payable is credited,but the vendor is the
transportation company.
• Also called gross margin
• Is the difference between net sales and
cost of goods sold
• Tells management the amount of sales
dollars available to cover expenses, after
covering the cost of the goods sold
FORMULA:
NET
SALES
COST OF
GOODS SOLD
GROSS
PROFIT
Let’s look at an example.
– =
During the month, 20 hats are sold for $10 each. The hats were originally purchased for
$7.50 each.
20 hats @ $10 each = $200 in salesThere were no sales returns and allowancesor sales discounts, so NET SALES = $200.
NET
SALES
COST OF GOODS
SOLD
GROSS
PROFIT
$200
– =
During the month, 20 hats are sold for $10 each. The hats were originally purchased for
$7.50 each.
NET
SALES
$200
COST OF
GOODS SOLD
20 hats @ $7.50 each = $150
$150
GROSS
PROFIT–
–
=
During the month, 20 hats are sold for $10 each. The hats were originally purchased for
$7.50 each.
NET
SALES
$200
COST OF
GOODS SOLD
The gross profit on these 20 hats was $50. This $50 is used to cover expenses.
$150
GROSS
PROFIT
$50
–
–
=
=
Sales
Sales Returns and Allowances
$200,500
1,200
Purchases 105,000
Purchases Returns and Allowances 800
Purchases Discounts 1,000
Freight-In 300
Merchandise Inventory, 1/1/--
Merchandise Inventory, 12/31/--
26,000
18,000
Let’s computethe gross profit.
STEP #1: Compute net sales.
FORMULA:
SALESSALES RETURNS
AND ALLOWANCES–
Sales
Less sales ret. and allow.
Net sales
$200,500
1,200
$199,300
This is the price we charged ourcustomers for the merchandise.
STEP #2: Compute goods available for sale.
FORMULA:
BEGINNING
INVENTORY
COST OF GOODS
PURCHASED+
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Sales
Less sales returns and allow.
Net sales
$200,500
1,200
$199,300
Cost of goods sold:
Merchandise inv., Jan 1 $ 26,000
Purchases $105,000
Less: Purch. ret. and allow. $ 800
Purchases discounts 1,000
Net purchases
1,800
$103,200
Cost of goods purchased
Add freight-in 300
103,500
Goods available for sale $129,500
This is the cost of ALL the goods that were offered for sale.
STEP #3: Compute cost of goods sold.
FORMULA:
GOODS
AVAILABLE
FOR SALE
ENDING
INVENTORY–
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Sales
Less sales returns and allow.
Net sales
$200,500
1,200
$199,300
Cost of goods sold:
Merchandise inv., Jan 1 $ 26,000
Purchases $105,000
Less: Purch. ret. and allow. $ 800
Purchases discounts 1,000
Net purchases
1,800
$103,200
Cost of goods purchased
Add freight-in 300
103,500
Goods available for sale $129,500
Less merch. inv, Dec. 31 18,000
Out of the $129,500 of merchandiseavailable to sell, $18,000 was not sold.
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Sales
Less sales returns and allow.
Net sales
$200,500
1,200
$199,300
Cost of goods sold:
Merchandise inv., Jan 1 $ 26,000
Purchases $105,000
Less: Purch. ret. and allow. $ 800
Purchases discounts 1,000
Net purchases
1,800
$103,200
Cost of goods purchased
Add freight-in 300
103,500
Goods available for sale $129,500
Less merch. inv., Dec. 31 18,000
Cost of goods sold 111,500
From that we can determinethat $111,500 of merchandise was sold.
STEP #4: Compute gross profit.
FORMULA:
NET
SALES
COST OF
GOODS SOLD–
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Sales
Less sales returns and allow.
Net sales
$200,500
1,200
$199,300
Cost of goods sold:
Merchandise inv., Jan 1 $ 26,000
Purchases $105,000
Less: Purch. ret. and allow. $ 800
Purchases discounts 1,000
Net purchases
1,800
$103,200
Cost of goods purchased
Add freight-in 300
103,500
Goods available for sale $129,500
Less merch. inv., Dec. 31 18,000
Cost of goods sold 111,500
The merchandise was soldfor $87,800 more than its cost.
Gross profit $87,800
3
Describe and use the
accounts payable ledger.
• In the ledger account:
– Step 1: Enter the date.
– Step 2: Enter the amount of the
transaction.
– Step 3: Enter the new balance.
– Step 4: Enter the journal page number.
• In the journal:
– Step 5: Enter the ledger account
number in the PR column.
• A separate “subsidiary” ledger
• Contains an individual account payable for
each supplier
• Often numbered
• Filed either alphabetically or numerically
• A summary accounts payable account
maintained in the general ledger is the
controlling account
• In the accounts payable ledger account:
– Step 1: Enter the date.
– Step 2: Enter the amount of the
transaction.
– Step 3: Enter the new balance.
– Step 4: Enter the journal page number.
• In the journal:
– Step 5: Enter a slash (/) followed by a
check mark () in the PR column.
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DATE DESCRIPTION PR DEBIT CREDIT
1
2
3
4
5
6
7
8
9
10
11
Let’s review the postingfor this transaction.
Purchases 3,300 00
Accts. Payable/Compucraft 3,300 00
Invoice No. 631
Apr. 420--
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DATE DESCRIPTION PR DEBIT CREDIT
1
2
3
4
5
6
7
8
9
10
11
A $3,300 debit is postedto the purchases account
in the usual manner.
Purchases 3,300 00
Accts. Payable/Compucraft 3,300 00
Invoice No. 631
Apr. 4 50120--
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DATE DESCRIPTION PR DEBIT CREDIT
1
2
3
4
5
6
7
8
9
10
11
The credit is posted to thecontrolling account in the general ledger.
Purchases 3,300 00
Accts. Payable/Compucraft 3,300 00
Invoice No. 631
Apr. 4 50120--
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Account: Account No.
DATE ITEM PR DR. CR.BALANCE
DR. CR.
ACCOUNTS PAYABLE 202
20--
Apr. 1
3,300
4,800
4
Balance
8,100
This entry is posted in the same manneras all other general ledger postings.
J6
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DATE DESCRIPTION PR DEBIT CREDIT
1
2
3
4
5
6
7
8
9
10
11
The accounts payable accountnumber is placed in the PR column.
Purchases 3,300 00
Accts. Payable/Compucraft 3,300 00
Invoice No. 631
Apr. 4 501
202
20--
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DATE DESCRIPTION PR DEBIT CREDIT
1
2
3
4
5
6
7
8
9
10
11
Purchases 3,300 00
Accts. Payable/Compucraft 3,300 00
Invoice No. 631
Apr. 4 501
202
Now we need to post to theindividual supplier’s account.
20--
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Name:
DATE ITEM PR DEBIT CREDIT BALANCE
Compucraft, Inc.
20--
Apr. 3,3004
The date is entered, the amount is recorded, the balance is updated, andthe journal page number is referenced.
Address: 2100 West Main Street, Muncie, IN 47304-8139
3,300J6
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DATE DESCRIPTION PR DEBIT CREDIT
1
2
3
4
5
6
7
8
9
10
11
Purchases 3,300 00
Accts. Payable/Compucraft 3,300 00
Invoice No. 631
Apr. 4 501
202/
A slash (/) is entered along with acheck mark (), which indicates the entry
has been posted to the subsidiary ledger.
20--
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DATE DESCRIPTION PR DEBIT CREDIT
1
2
3
4
5
6
7
8
9
10
11
Accounts Payable/Televax 200 00
Purchases Ret. and Allow. 200 00
Returned merchandise
May 4
Now let’s look at the postingfor a purchase return entry.
20--
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DATE DESCRIPTION PR DEBIT CREDIT
1
2
3
4
5
6
7
8
9
10
11
Accounts Payable/Televax 200 00
Purchases Ret. and Allow. 200 00
Returned merchandise
May 4
The $200 debit is posted to the accounts payable controlling account and to
the subsidiary ledger account for Televax.
202/20--
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DATE DESCRIPTION PR DEBIT CREDIT
1
2
3
4
5
6
7
8
9
10
11
Accounts Payable/Televax 200 00
Purchases Ret. and Allow. 200 00
Returned merchandise
May 4 202/
Purchases Returns and Allowances is posted in the normal manner. Its account
number is recorded in the PR column.
501.1
20--
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DATE DESCRIPTION PR DEBIT CREDIT
1
2
3
4
5
6
7
8
9
10
11
Accounts Payable/B. B. Small 4,800 00
Cash
Made payment on account
Apr. 10
Cash payment transactionsare posted in a similar manner.
4,800 00
20--
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DATE DESCRIPTION PR DEBIT CREDIT
1
2
3
4
5
6
7
8
9
10
11
Accounts Payable/B. B. Small 4,800 00
Cash
Made payment on account
Apr. 10
4,800 00
The debit is posted to the accounts payable controlling account and to the
subsidiary ledger account for B. B. Small.
202/20--
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DATE DESCRIPTION PR DEBIT CREDIT
1
2
3
4
5
6
7
8
9
10
11
Accounts Payable/B. B. Small 4,800 00
Cash
Made payment on account
Apr. 10
4,800 00
Cash is posted as usual.
101
202/20--
4
Prepare a schedule of
accounts payable.
• Prepared to verify that the sum of the
accounts payable ledger balances equals
the Accounts Payable balance
• Is an alphabetical or numerical listing of
supplier accounts and their balances
• Usually prepared at the end of the month
• The total calculated in the schedule is
compared with the balance in Accounts
Payable in the general ledger
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Northern Micro
Schedule of Accounts Payable
April 30, 20--
$ 3,300Compucraft, Inc.
Datasoft
Printpro Corp.
Televax, Inc.
2,500
800
5,300
$11,900
This should be the balance in the accounts payable controlling account.