chapter 8. Accounting Purchases, Accounts Payable, and Cash Payments

when a payment is due is determined by?

the invoice date and the credit terms

true or false: the posting of purchase transactions to the general ledger is done in the same manner as sales transactions

true

what is the purpose of a purchase requisition?

used by a sales department to notify the purchasing department of the items wanted

receiving report

a form showing quantity and condition of goods received

freight in account

an account showing transportation charges for items purchased

purchases account

an account used to record cost of goods bought for resale during a period - a temporary account used to record the cost of goods bought for resale during a period

periodic inventory system

an inventory system which is updated based on physical inventory count

what is the purpose of a purchase order?

prepared by the purchasing department to order the necessary goods at an appropriate price from the selected supplier

what is the name of the account used to record purchases of merchandise inventory when the periodic system is used?

purchases

purchase return

return of unsatisfactory goods

what type of account is purchases returns and allowances?

contra expense account

postings to the accounts payable ledger should be made?

daily

the amount of the purchases for a period is presented in...?

the cost of goods sold section of the income statement

purchase inovice

the source document for recording a purchase of merchandise on credit

objectives of internal controls

- create written proof that purchases and payments are authorized - ensure that different people are involved in the process of buying goods, receiving goods, and making payments

purchases returns and allowances account

- made when a vendor returns something to a supplier - a complete record of returns and allowances - a contra cost of goods sold account - normal credit balance - is a contra expense of goods sold account, and the normal balance of this account is a credit

purchase invoice

a bill received for goods purchased - a bill that is received by a merchandiser for items ordered and shipped

sales discount

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

purchases discount

a cash discount offered to customers for payment within a specified period

cash discount

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

effective systems have the following controls in place

1. all purchases should be made only after proper authorization has been given 2. goods should be carefully checked when they are received. they should then be compared with the purchase order and with the invoice received from the supplier 3. the purchase order, receiving report, and invoice should be checked to confirm that the information on the documents is in agreement 4. the computations on the invoice should be checked for accuracy 5. authorization for payment should be made by someone other than the person who ordered the goods, and this authorization should be given only after all the verification's have been made 6. another person should write the check for payment 7. Prenumbered forms should be used for purchase requisitions, purchase orders, and checks. The numbers of the documents issued should be verified periodically to make sure that all forms can be accounted for

schedule of accounts payable

a list of balances owed to creditors *made to prove that the control account and the subsidiary ledger are equal

purchase requistion

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

purchase allowance

a price reduction from the amount originally billed

accounts payable ledger

a subsidiary ledger that contains a separate account for each creditor

sales invoice

a supplier's billing document

transportation in account

same as freight in account

sales invoice

sent to the customer for items ordered

the total of the schedule of accounts payable should equal the balance of which general ledger account?

accounts payable

purchase order

an order to the supplier of goods specifying items needed, quantity, price, and credit terms

what accounts are kept in the accounts payable ledger?

individual accounts of all suppliers

what is the purpose of the schedule of accounts payable?

lists all of the creditors to whom money is owed

the total of the balances in the creditor's accounts should agree with the balance of:

the accounts payable account in the general ledgermb m

cost of goods sold

the actual cost to the business of the merchandise sold to customers

the customer's accounting department should compare the purchase invoice from the supplier to

the receiving report and purchase order

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 shows quantities and prices. The accounts payable clerk should compare the quantities per the invoice to the receiving report in order to ensure the firm is billed only for goods received. The accounts payable clerk should also compare the prices per the invoice to the purchase order to ensure the firm has not been overcharged. Checks written to pay for purchases are based on the invoice.

what is the purpose of a freight in account?

to record freight charges paid for purchases of merchandise inventory