acct chapter 15 class presentation
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Accounting 1TRANSCRIPT
Welcome to…
The Accounting Cycle for a Merchandising Corporation!!!
Chapter 15: Accounting for Purchases and Cash
Payments
Essential Outcomes
15. Understands relationship between purchases, other assets, and returns, allowances and discounts by being able to:
a. Read, calculate & record credit terms for suppliers
b. Explain the procedures for processing a purchase on account
c. Describe the accounts used in the purchasing process.
d. Record a variety of purchases and cash payment transactions
e. Post to the accounts payable subsidiary ledger
f. Define the accounting terms used in this chapter.
First step for business is #1
1. Purchase merchandise for
resale
2. Sale of goods for cash or on
account
3. Collect cash from accounts
4. Pay expenses: rent, utilities, salaries, etc.
5. Profit
All items bought/purchased from Wal-Mart are purchased from wholesalers and
suppliers.
The Purchasing Process
Four Stages of buying:
1. Requesting needed items2. Ordering from a supplier3. Verifying items received4. Processing the supplier’s
invoice
Requesting Needed Items
o Small business: owner does all buying of merchandise
o Large business: purchasing department buys items for entire company equipment supplies inventory
Requesting Needed ItemsPurchase requisition: departments make
written request to managers to purchase items for department thru this requisition form
Once approved, original copy sent to purchasing department & person making requests receives copy
Ordering from Supplier
Purchase Order <PO>: after requisition form is approved, fill out order form
Information for purchase order comes off purchase requisition form
On PO form:1. Quantity
2. Description
3. Unit price
4. Total cost
5. Supplier’s name & address
6. Date needed
7. Shipping method
Verifying Items ReceivedWhen order is shipped to buyer, packing slip
included with orderPacking Slip: form that lists items included in
shipmentUse packing slip to make sure all items have been
includedBuyer does not pay for items that were missing or
damaged or unordered
Processing Supplier’s Invoice
Supplier prepares “invoice” for buyer
Invoice sent; accounting clerk checks for accuracy
Invoice is source document for journal entry for buyer
Before invoice is journalized, processing stamp placed on invoice: date to be paid, discount amount, amount to be paid & check #
Purchases Discount
Purchases Discount: supplier offers customer (or buyer) cash discount for early payment
Purchases Discount and Sales <Cash> discount figured same way
Credit terms: 2/10, n/30Discount period: first 10 days of billAfter 10 days, pay full amount
Purchases Discount
Credit terms:
Merchandised Purchase x Discount Rate = Discount
$2,300 x .02 (2%) = $46
$2,300 - $46 = $2,254 amount buyer owes
The Purchases Account
Purchases Account: when business buys merchandise to sell to customers, cost of merchandise is recorded to this account
Purchases Account:1. Temporary account
2. Classified as a cost of merchandise account
3. Cost of merchandise accounts: contain actual cost to business of merchandise sold to customers
The Purchases Account
Merchandise purchased for resale is cost of doing business
Purchases Account: normal balance: debit
Used whenever merchandise is sold for resale
Analyzing & Recording Purchases on Account
Accounts Payable & Accounts Payable Subsidiary Ledger
When business purchases from many suppliers on account, hard to keep track of debts by using only Accounts Payable account in General Ledger
Accounts Payable: controlling account
Controlling account: where balance of all accounts are set up
Accounts Payable & Accounts Payable Subsidiary Ledger
Accounts Payable Subsidiary Ledger: listing of suppliers that company purchases from on continuous bases on account
The total of all of suppliers listed in Accounts Payable Subsidiary ledger should equal balance in Accounts Payable in General Ledger
Recording the Purchase of Merchandise on account
Purchases A/R or Cash
$2,300 $2,300
Recording Merchandise Purchased for Resale
On Dec. 14, On Your Mark purchased $2,300 in merchandise on account from Pro Runner Warehouse, Inv. #7894
P
Purchased $900 in merchandise on account from Sunrise Novelty
Supply. Invoice SN 110.
Purchases A/P – Sunrise Novelty
$900 $900
Posting
Posting to Accounts Payable & Accounts Payable Subsidiary
Ledger
1. First: Post to General Ledger—Accounts Payable (controlling account)—return to General Journal & put account # on top of diagonal line
2. Second: Post to individual account in Subsidiary ledger—return to General Journal & put check mark below diagonal line in Post. Ref.
A Comparison
Accounts Receivable• Controlling Account• Used for merchandise
sold on account• Normal Balance: Debit• Accounts Receivable
Subsidiary Ledger• Double Post• Sales Returns &
Allowances• Sales Discount\• Credit Memo
Accounts Payable• Controlling Account• Used for merchandise
purchased on account• Normal Balance: Credit• Accounts Payable
Subsidiary Ledger• Double Post• Purchases Returns &
Allowances• Purchases Discount• Debit Memo
Recording Other Purchases on Account
Recording other Purchases on Account
Purchase/buy supplies, equipment, land, etc. for cash or on account
The Purchases account is ONLY used for buying of “merchandise”.
Accounts used for buying other assets will be debited to that particular asset account.
Purchases Returns & Allowances
Purchases Returns and Allowances
Contra account : to Purchases, meaning it has opposite balance
Normal balance: credit Purchase Returns: business returns
purchased merchandise to creditor for full credit
Purchases allowance: business keeps less than satisfactory merchandise and pays reduction in price
Source document: Debit Memorandum
Debit Memorandum
Our business want to return $900 of merchandise purchased on account due to damage. Entry would be as follows
A/P Sunrise Novelty
Purchases Returns & Allowances
$900 $900
A Comparison
Sales Returns & Allowances
• Contra account to Sales• Source document: Credit
Memorandum• Used for sales customers
who return merchandise due to wrong size, wrong color, defective, etc.
• Normal Balance: Debit
Purchases Returns & Allowances
• Contra acct to Purchases• Source document: Debit
Memorandum• Used by business who
purchased merchandise due to wrong size, wrong color, defective, etc.
• Normal Balance: Credit
Analyzing Cash Payment Transactions
Analyzing Cash Payments
Usually all payments by business are paid by check
Internal control measures to safe guard money
Three types of cash payments that occur frequently:
1.Purchases Discounts2.Purchase of Insurance3.Purchase of Items
bought on account
Purchases Discounts
Purchases Discount: used whenever company pays early on merchandise bought/purchased on account
Purchases Discount: contra asset account to Purchases account (has opposite normal balance)
Normal Balance: credit
1. Purchases Discounts
Purchase Invoice has credit terms of 2/10, n/30. Invoice purchase costs $1,150.
Company pays bill within 10, must figure purchases discount
$1,150 x .02 = $23.00
$1,150 - $23 (discount) = $1,127
1. Purchases Discounts
Journal Entry:
Accounts Payable $1,150
Purchases Discount $ 23
Cash in Bank 1,127
Check #115
A Comparison
Sales Discount Customer pays
early within credit terms
Control account: Sales
Normal Balance: Debit
Accounts affected: Cash in Bank (dr); Sales Discount (dr) & A/R credit
Purchases Discount
• Business (buyer of merchandise) pays early within credit terms
• Control account: Purchases
• Normal Balance: Credit
• Accounts affected: A/P (dr) & Purchases Discount (cr); Cash in Bank (cr)
2. Analyzing Insurance Payments
Businesses usually buy insurance to protect company against fire, flood, etc.
Usually company pays 6-month premium in advance for protection of its company every two years
Premium: cost of insurance protection
Premiums charged to account called, “Prepaid Insurance.”
Analyzing Insurance Payments
At end of year, used amount of insurance or the “expired amount” becomes an adjusting entry (more on this later).
Prepaid Insurance: asset account Normal Balance: debit
Journalizing Insurance Payments
On December 17, pay $1,500 to Keystone Insurance Company for premium on six-month insurance policy, check #1001
Journal Entry:
Prepaid Insurance $1,500
Cash in Bank $1,500
Check #1001
3. Other Cash Payments: Shipping cost of merchandise
Buy merchandise from supplier, someone must pay for shipping (moving) merchandise from warehouse to place of sale
Shipping terms determine who pays shipping charges: either buyer or supplier
FOB: Means Free on Board
3. Shipping cost of merchandise
FOB destination: supplier pays shipping costs from supplier to buyer’s business.
FOB Shipping point: buyer pays the shipping charge from supplier’s shipping point to buyer’s business.
FOB Shipping Point: additional cost to merchandise purchased.
Transportation In Journal Entry
FOB Shipping Point: additional cost to merchandise purchased.
Account used: Transportation In Transportation In: NB: Debit Journal Entry:
Transportation In Debit
Cash in Bank Credit
3. Bankcard Fees
o Fee that banks charge for handling bankcard sales slips
o Usually percentage of total amount on bankcard sales slips.
o Bankcard Fees: expense & has NB-debito Journal Entry:
Bankcard Fees Expense $75
Cash in Bank $75
That’s all folks!!!
Now, on to some class activities!!!