Chapter 9 Terms and concepts

Why are there two account titles in the amount column of the purchases journal?

All transactions for purchasing merchandise on account involve a debit to Purchases and a credit to Accounts Payable.

Why is it important to record a posting reference in the accounts payable ledger?

It provides an audit trail that allows an employee to trace the transaction back to the journal and page number.

Purchases journal

a special journal used to record only purchases of merchandise on account.

Controlling account

an account in a general ledger that summarizes all accounts in a subsidiary ledger is called a-

Articles of Incorporation

A legal document that identifies basic characteristics of a corporation, is a part of the application submitted to a state to become a corporation

Inventory

A list of assets, usually containing the value of individual items, is called an-

Schedule of accounts payable

A listing of vendor accounts, account balances, and the total amount due to all vendors is called a-

Subledger

Accountants often refer to a subsidiary ledger as a-

Perpetual inventory

An inventory determined by keeping a continuous record of increases, decreases, and the balance on hand of each item of merchandise is called a-

Purchase invoice

An invoice used as a source document for recording a purchase on account transaction is called a-

How is cash short recorded in the account, Cash Short and Over?

As a debit

Capital

Assets or other financial resources available to a business are called-

Wholesale Merchandising business

Buys and resells merchandise primarily to other merchandising businesses

What is recorded in the general amount columns of the cash payments journal?

Cash payment transactions that do not occur often

What column on a general ledger form is not on an accounts payable ledger form?

Debit Balance

Share of stock

Each unit of ownership in a corporation is called a-

Merchandise

Goods that a business purchases to sell are called-

When the perpetual inventory system is used, in what account are purchases recorded? In what account are purchases recorded when the periodic inventory system is used?

In a perpetual inventory system, purchases are recorded in the Merchandise Inventory account. In a periodic inventory system, purchases are recorded in the Purchases account.

Corporation

Organization with the legal rights of a person which many persons or other corporations may own.

What is meant by terms of sale 2/10, n/30?

Two ten means 2% of the invoice amount may be deducted if the invoice is paid within 10 days of the invoice date. Net thirty means that the total invoice amount must be paid within 30 days.

Cash payments journal

for all cash payments

Cash receipts journal

for all cash receipts

General journal

for all other transactions

Purchases journal

for all purchases of merchandise on account

Sales journal

for all sales of merchandise on account

Discount Period

the period of time during which a customer may take a cash discount is called the-

Accounts payable ledger

the subsidiary ledger containing vendor accounts is called an-

What is the net price of an item with a $1,200.00 list price having a 60% trade discount?

$480.00

List the five steps for ruling a cash payments journal at the end of the month.

1. Rule a single line across all amount columns. 2. Write the date in the Date column. 3. Write Totals in the Account Title column. 4. Write each column total below the single line. 5. Rule a double line across all amount columns.

Vendor

A business from which merchandise, supplies, or other assets are purchased is called a-

Merchandising business

A business that purchases and resells goods is called a-

What is the relationship between a controlling account and a subsidiary ledger?

A controlling account balance in a general ledger must equal the sum of all account balances in a subsidiary ledger.

What allows a corporation to own property, incur liabilities, and enter into contracts in its own name?

A corporation, through the rights granted in its charter, has the legal rights of a person.

Cash discount

A deduction that a vendor allows on an invoice amount to encourage prompt payment.

Purchase order

A form requesting that a vendor sell merchandise to a business is called a-

Requisition

A form requesting the purchase of merchandise is called a-

Special amount column

A journal amount column headed with an account title is called a-

General amount column

A journal amount column that is not headed with an account title is called a-

Special Journal

A journal used to record only one kind of transaction is called a-

Subsidiary ledger

A ledger that is summarized in a single general ledger account is called a-

Periodic inventory

A merchandise inventory evaluated at the end of a fiscal period is called a-

Retail Merchandising business

A merchandising business that sells to those who use or consume the goods is called

What information is contained on a purchase invoice?

A purchase invoice lists the vendor name and address; the date; the quantity, description, and price of each item; and the total amount of the purchase.

Trade discount

A reduction in the list price granted to a merchandising buisiness

What is the primary difference between retail and wholesale merchandising businesses?

A retail merchandising business sells to those who use or consume the goods. A wholesale merchandising business buys and resells merchandise primarily to other merchandising businesses.

Cash Payments journal

A special journal used to record only cash payment transactions

Purchase on account

A transaction in which the items purchased are to be paid for later is called a-

In which column of the cash payments journal are the amounts that are posted individually to the accounts payable ledger?

Accounts Payable Debit

Contra account

An account that reduces a related account on a financial statement is called a-

Terms of sale

An agreement between a buyer and a seller about payment for merchandise is called the-

Why should a business frequently post from the purchases journal to the accounts payable ledger?

Posting frequently to the accounts payable ledger helps ensure that vendor accounts are paid on time and that the business can continue purchasing goods and services on account.

What is the principal difference between the accounting records of proprietorships and corporations?

Proprietorships have a single capital and drawing account for the owner. A corporation has separate capital accounts for the stock issued and for the earnings kept in the business.

Identify the four special journals typically used by a business.

Purchases journal, cash payments journal, sales journal, cash receipts journal.

How are special amount columns used in a journal?

Special amount columns are used for frequently occurring transactions.

Cost of Merchandise

The amount a business pays for goods it purchases to sell is called-

Due date

The date by which an invoice must be paid is called the-

Merchandise inventory

The goods a business has on hand for sale to customers is called-

Charter

The legal right for a business to conduct operations as a corporation

Credit limit

The maximum outstanding balance allowed to a customer by a vendor

Stockholder

The owner of one or more shares of stock is called a-

Net price

The price after the trade discount has been deducted from the list price is referred to as the-

List price

The retail price listed in a catalog or on an Internet site is called a-

What is the relationship between a controlling account and a subsidiary ledger?

The sum of the subsidiary ledger accounts is equal to the balance in the general ledger controlling account.

When journalizing a cash payment to replenish petty cash, what is entered in the Account Title column of the cash payments journal?

The titles of the accounts for which the petty cash funds were used

Capital stock

The total shares of ownership in a corporation are called capital stock

Why would a vendor offer a cash discount to a customer?

To encourage early payment

Why is the vendor number written in the Post. Ref. column of the purchases journal?

To provide an audit trail to the account where the transaction was posted

What is the advantage of having special amount columns in a journal?

Using special amount columns eliminates writing general ledger account titles in the Account Title column, which saves time and helps to reduce mistakes.

Purchases discount

When a company that has purchased merchandise on account takes a cash discount, it is called a-

Physical inventory

When a periodic inventory is conducted by counting, weighing, or measuring items of merchandise on hand, it is called a-

What is the difference between a periodic inventory system and a perpetual inventory system?

With a periodic inventory system, the value of the inventory is determined by a physical count. With a perpetual inventory system, the value of the inventory on hand is determined by a continuous record of increases and decreases.