CHAPTER 8:: ACCOUNTING for PURCHASES and ACCOUNTS PAYABLE

Purchase return (244)

Return of unsatisfactory goods

The net delivered cost of purchases for the period appears on:

Th income statement

When the sales department needs goods, what document is sent to the purchasing department?

The Purchase Requisition

Cost of goods sold (238)

The actual cost to the business of the merchandise sold to costumers

What form is sent to the supplier to order goods?

The purchase order

What is the purpose of a purchase requisition? And a purchase order?

The purchase requisition is used by a sales department to notify the purchasing department of the items wanted. The purchase order is prepare by the purchasing department to order the necessary goods at an appropriate price from the selected supplier.

What is the difference between a receiving report and an invoice?

The receiving report shows the quantity of goods received and the condition of the goods. The invoice shoes quantity and prices; it is the document from which checks are prepared in payment of purchases.

Purchase invoice (236)

A bill received for good purchased

Sales discount (240)

A cash discount offered by the supplier for payment within a specified period

Purchases discount (240)

A cash discount offered to the costumer for payment within a specified period

What type of account is Purchases Returns and Allowances?

A contra cost of goods sold account

Cash discount (240)

A discount offered by suppliers for payment received within specified period of time

Receiving report (236)

A form showing quantity and condition of goods received

Schedule of accounts payable (246)

A list of all balances owed to creditors

Purchase requisition (236)

A list sent to the purchasing department showing the items to be ordered

Purchase allowance (244)

A price reduction from the amount originally billed

What is a cash discount and why is it offered?

A price reduction offered to encourage quick payment of invoices by customers.

Purchases journal (238)

A special journal used to record the purchase of goods on credit

Accounts payable ledger (243)

A subsidiary ledger that contains a separate account for each creditor

Sales invoice (236)

A supplier's billing document

Freight in Account (238)

An account showing transportation charges for items purchased

Purchases account (238)

An account used to record cost of goods bought for resale during a period

Perpetual inventory system (250)

An inventory system in which merchandise inventory is updated for each purchase, sale, and return

Periodic inventory system (250)

An inventory system in which the merchandise inventory balance is only updated when a physical inventory is taken

Purchase order (236)

An order to the supplier of goods specifying items needed, quality price, and credit terms

Transportation In account (238)

As freight in account which is showing transportation charges for items purchased

What is the purpose of the schedule of accounts payable?

It list all of the creditors to whom money is owed.

What are the advantages of using a purchases journal

It saves time and effort, and it strengthens the audit trail

What activities does a purchasing department perform?

Locating suitable suppliers, obtaining price quotations and credit terms, and placing orders.

What type of transaction is recorder in the purchases journal?

Merchandise purchased on credit for resale

What is the purpose of the Freight In account?

To accumulate freight charges paid for purchases