Chapter 8: Accounting for Purchases and Accounts Payable

4. enter the amount from the Accounts Payable Credit column in the purchases journal to the Credit column of the Accounts Payable ledger account

4th posting step

4. the accounting department receives the invoice and copies of the purchase order and receiving report

4th step in purchasing procedures

4. in the Freight In Debit column, enter the freight amount

4th step in recording purchases in the special three-column purchases journal

5. compute the new balance and enter it in the Balance Credit column

5th posting step

6. in the purchases journal, enter the Accounts Payable ledger account number (205) under the column total

6th posting step

7. place a check mark in the posting reference column of the purchases journal

7th posting step

8. repeat the steps for the Purchases Debit and Freight In Debit columns

8th posting step

Freight In

Freight charges paid by the buyer of merchandise are debited to

accounts payable

Johnson Company returned damaged merchandise to a supplier. The merchandise was purchased on account. The journal entry to record this return includes a debit to:

purchase invoice

a bill received for goods purchased

purchase invoice

a bill that is received by a merchandising for items ordered and shipped

early payment discount

a business may be able to take advantage of an ____ if it pays the invoice within a certain period of time

sales discount

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

purchases discount

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

purchases returns and allowances

a complete record of returns and allowances

purchases returns and allowances

a contra cost of goods sold account

debit

decreases to the creditor's account are recorded with ____

cost of goods sold

follow the debit and credit rules of expense accounts

purchase order

form that is sent to the supplier to order goods

3

how many money columns does the accounts payable ledger has?

purchases + freight in - purchases returns and allowances

how to compute the net delivered cost of purchases?

equipment

if freight is paid for purchases of equipment to be used by the business, the freight charges are debited to ___

credit

increases to the creditor's account are recorded with ____

internal control

its purpose is to safeguard assets, ensure reliability of accounting data, and promote compliance with management policies and applicable laws

Purchase Returns and Allowances

made when a vendor returns something to a supplier or receives an allowance against an amount owed

assets, liabilities, owner's equity, revenue, expenses

major account classifications

2% 10 days, net 30 days - if payment is made within 10 days of the invoice date, the customer can take a 2% discount. otherwise, payment in full is due in 30 days

meaning of 2/10, n/30

net 10 days EOM - payment in full is due 10 days after the end of the month in which the invoice was issued

meaning of n/10 EOM

net 30 days - payment is full in due 30 days after the date of the invoice

meaning of n/30

voucher system

medium and large-sized firms often use a ____ to help insure effective internal control over purchases

debit

normal balance of Freight charge

credit

normal balance of Purchase Returns and Allowances

debit

normal balance of Purchases account

summary accounts

posted at the end of the month

Balance column

presumed to contain credit amounts

false - purchase requisition forms should use prenumbered forms to insure all forms are accounted for

purchase requisition forms should not use prenumbered forms to insure all forms are accounted for

general journal

purchases returns and purchases allowances are normally recorded in the ___

accounts payable ledger

report the balance owned to an individual supplier

purchasing department

selects a supplier that can furnish the gods at a competitive price and then issues a purchase order

sales invoice

sent to the customer for items ordered

purchase order

signed by someone with authority to approve purchases, usually the purchasing agent

purchase requisition

signed by someone with the authority to approve requests for merchandise, usually the manager of the sales department

purchases journal

simplifies the posting process

purchases journal

streamlines the journalizing process and the posting process as well

credit accounts payable debit purchases debit freight in

columns included in a Purchases Journal

purchase order

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

3. in the Purchases Debit column, enter the price of the goods purchased

3rd step in recording purchases in the special three-column purchases journal

a separate account for each creditor

an accounts payable subsidiary ledger is a subsidiary ledger that contains:

1. locate the Accounts Payable ledger account

1st posting step

1. the sales department sends an authorized purchase requisition to the purchasing department

1st step in purchasing procedures

1. enter the date, supplier's name, invoice number, invoice date, and credit terms

1st step in recording purchases in the special three-column purchases journal

2. enter the date

2nd posting step

2. the purchasing department issues an authorized purchase order and sends it to the selected supplier

2nd step in purchasing procedures

2. in the Accounts Payable Credit column, enter the total owed to the supplier

2nd step in recording purchases in the special three-column purchases journal

3. enter the posting reference

3rd posting step

3. a receiving report is prepared when the merchandise is received

3rd step in purchasing procedures

cash discount

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

cash discount

a discount offered by suppliers to encourage quick payment by customers

receiving report

a form showing quantity and condition of goods received

purchase requisition

a form used to notify the purchasing department that items need to be ordered

schedule of accounts payable

a list of all the balances owed to creditors, prepared to prove that the control account and the subsidiary ledger are equal

purchase requisition

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

purchase allowance

a price reduction for the purchaser because goods received were not as expected is called a ____

purchase return

a return of unsatisfactory goods

purchase return

a return of unsatisfactory goods previously purchased for resale

purchase allowance

a seller granting an allowance towards the purchase price

purchases journal

a special journal used to record credit purchases of merchandise

accounts payable ledger

a subsidiary ledger that contains a separate account for each creditor

sales invoice

a supplier's billing document

purchases account

a temporary account classified as a cost of goods sold account

1. allows division of work 2. strengthens the audit trail 3. records all credit purchases in one place

advantages of a purchases journal

Freight In or Transportation In account

an account showing transportation charges for items purchased

purchases account

an account used to record cost of goods brought for resale during a period

cost of goods sold

the Purchases account is under a different classification:

cost of goods sold

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

internal control

the company's policies and procedures in place

expense

the cost of goods sold account is a(n) ____

10; 2; 30

the credit terms 2/10, n/30 means that if payment is made within ___ days of the invoice date, the customer can take a ____ % discount. otherwise, payment in full is due in ___ days

purchases, freight in, and accounts payable

the purchases journal records entries to the following accounts:

individual creditor's account in the accounts payable ledger

then, the cash payment is posted to the ____

every day

to keep the accounting records up to date, invoices are posted to the accounts payable subsidiary ledger ____

freight in

transportation charges for items purchased is called the ____ account

true

true or false a company's internal control process should ensure that the person buying and receiving goods is different from the person making payment

true

true or false computations on the invoice should be checked for accuracy

true

true or false create written proof that purchases and payments are authorized

false - a company should use separation of duties: a different employees should be approving vouchers, recording vouchers and payment, and signing checks

true or false ensure that one employee approves vouchers, records vouchers, and payments, and signs checks

true

true or false goods order should be carefully checked when received

true

true or false purchases should only be made after proper written authorization

false - the purchase order, receiving report and invoice should be checked to confirm that the information is in agreement

true or false the purchase order and invoice only should be checked to confirm that the documents are in agreement

purchases journal

used by merchandising businesses to record credit purchases of merchandise

purchases journal page number

what does 1 stand for?

purchases journal

what does P stand for?

a cost of goods sold account with a normal debit balance

what is a Purchases account?

double check the equality of the debits and credits recorded in the purchases journal

what to do before posting?

purchases of merchandise inventory on credit

what type of transaction is recorded in the purchases journal?

sales discount

when a supplier is offering a customer a cash discount for receipt of payment within a specific period, such as 2/10, n/30, it is referred by the supplier as a ____

cash payments journal

when cash is paid to a supplier for an outstanding invoice, the transaction is first recorded in a ____

posting reference

where is the check mark placed?

record in the general journal post them to the accounts payable subsidiary ledger

where is the purchases returns and allowances recorded and posted?