Key Terms

Controlling Account

(AP) The account in the general ledger that summarizes or controls a subsidiary ledger. (Example: The Accounts Payable account in the general ledger is the controlling account for the accounts payable subsidiary ledger. After postings are complete, it shows the total amount owed from purchases made on account.

Accounts Receivable Subsidiary Ledger

A book or file that contains the individual records of amounts owed by various credit customers, usually in alphabetical order.

Accounts Payable Subsidiary Ledger

A book or file that contains the names of the creditors in alphabetical order and the amounts owed from purchases on account.

Receiving Report

A business form used to notify purchasing and accounting of the ordered goods received, indicating the quantities and specific condition of the goods.

Purchases Discounts

A contra-expense account in the general ledger that records discounts offered by suppliers of merchandise for prompt payment of purchases by buyers. Normally has a credit balance.

Purchases Returns and Allowances

A contra-expense account with a credit balance in the ledger that records the amount of defective or unacceptable merchandise returned to suppliers and/ or price reductions given for defective items sold.

Sales Returns and Allowances

A contra-revenue account that records price adjustments and allowances granted on merchandise that is defective and has been returned. IT has a debit balance.

Purchase Order

A form used in business to place an order to buy goods from a seller.

Purchase requisition

A form used within a business by the requesting department asking the purchasing department of the business to buy specific goods.

Special journal

A journal used to record similar groups of transactions. (Example: the sales journal, which records all sales on account.

Subsidiary ledger

A ledger that contains accounts of a single type. (Example: the accounts receivable subsidiary ledger, which records all customers that purchase goods on account.

Schedule of accounts receivable

A list of the customers, in alphabetical order, that have an outstanding balance in the accounts receivable subsidiary ledger. This total should be equal to the balance of the Accounts Receivable controlling account in the general ledger at the end of the month.

Debit Memorandum

A memo issued by a purchaser to a seller, indicating that some purchases returns and allowances have occurred and therefore the purchaser now owes less money on account.

Purchases journal

A multicolumn special journal that records they buying of merchandise or other items on account.

Discount Period

A period during which a customer can take a cash discount to encourage early payment of bills. The discount period is shorter than the credit period.

Credit Memorandum

A piece of paper sent by the seller to a customer who has returned merchandise previously purchased on credit. The credit Memorandum indicates to the customer that the seller is reducing the amount owed by the customer.

Cash Payments Journal (cash disbursements journal)

A special journal that records al transactions involving payment by cheque.

Cash receipts journal

A special journal that records all transactions involving the receipt of cash from any source.

Sales journal

A special journal used to record only sales made on account.

Sales discount

Cash discount granted to customers for payments made within a specific period of time. A contra-revenue account is used to record sales discounts granted.

Merchandise

Goods brought into a store for resale to customers.

Net purchases

Gross purchases less purchase returns and allowances and purchase discounts.

Net Sales

Gross sales less sales returns and allowances and less sales discounts.

Credit Period

Length of time allowed for payment of goods sold on account.

Purchases

Merchandise for resale. It is an expense.

Retailer

Merchant who buys goods from wholesalers or manufacturers for resale to customers.

Sundry Accounts

Miscellaneous accounts column(s) in a special journal, which records transactions that do not occur often.

F.O.B. shipping point

Purchaser pays or is responsible for the sipping costs from the seller's shipping point to the purchaser's location.

F.O.B. destination

Seller pays or is responsible for the cost of freight to the destination or purchaser's location.

Invoice Approval Form

The accounting department uses this form in checking the invoice and finally approving it for recording and payment.

Cross-footing

The process of proving that the total debit columns of a special journal are equal to the total columns of that journal.

Gross Sales

The revenue earned from the sale of merchandise to customers. It has a credit balance.

Purchase Invoice

The seller's invoice, which is sent to the purchaser.

Wholesalers

Those who buy goods from suppliers and manufacturers for sale to retailers.

Sales invoice

a bill sent to a customer reflecting a sale, usually on credit.

F.O.B.

free on board

Free on board (F.O.B.)

this means without shipping charge to the buyer up to specified locations. The seller bears the cost up to the specified location and they buyer bears the cost from that location to the actual destination.