Chapter#8 - Accounting for Purchases, Accounts Payable, and Cash Payments

What is Net Delivered Cost of purchases?

Purchases plus freight-in, less purchase returns and allowances less purchase discounts.

Purchase Return

Return of unsatisfactory goods.

What should the customers accounting department should compare the Purchase Invoice from the supplier to?

The Receiving Report and the Purchase Order.

Cost of Goods Sold

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

What does "FOB Shipping Point" Mean?

The buyer pays the freight charge.

Andy's Garden Supplies purchases merchandise on account from Lawn Supplier, Inc. The list price is $1,600, with trade discounts of 25% and 10%, terms end/30. What amount should Andy's Garden Supplies pay to Lawn Supplier, Inc.?

$1,080 is to be paid. ($1600 - $400 = $1200 $1200 - $120 = $1,080)

Purchase Return Allowance

A Contra Expense Account where purchase returns and purchase allowances are recorded.

What type of account is Purchases Returns and Allowances?

A Contra Expense Account.

Purchase Invoice

A bill received for goods purchased.

Purchase Discount

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

Cash Discount

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

Receiving Report

A form showing quantity and conditions of goods received.

Purchase Order

A form that specifies the exact item, quantity, price, and credit terms, which is signed by an authorize manager within a company, approving a purchase.

Schedule of Accounts Payable

A list of all balances owed to creditors.

Purchase Allowance

A price reduction from the amount originally billed.

Purchase Requisition

A submitted request to a companies purchasing department that lists items needing approval for ordering.

Accounts Payable Ledger

A subsidiary ledger that contains a separate account for each creditor.

Sales Invoice

A suppliers billing document.

The total of Schedule of Accounts Payable should equal the balance of which General Ledger Account?

Accounts Payable Account.

Freight-In Account

An Account showing transportation charges for items purchased.

Purchase Account

An Account used to record COGS bought for resale during a period.

In the Accounts Payable Ledger, a suppliers account has a beginning balance of $5,800. Subsequently, a purchase of $1,600 from this supplier is journalized and posted. What is the balance of the suppliers account?

Credit the suppliers account by $7,400.

The retail sportswear company purchased merchandise of $500 on account from Awesome Sweats. Awesome Sweats prepaid freight charges of $50 and added them to the invoice. How should the sportswear company record this this transaction?

Debit Purchases Expense $500 in one line item. Debit Freight-in Expense $50 in the next line item. Credit $550 to Accounts Payable/Awesome Sweats.

Which accounts are kept in the Accounts Payable Ledger?

Individual accounts for all suppliers.

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

Purchase Account.