chapter 8 - accounting for purchases, accounts payable, and cash payments

purchase invoice

a document sent to the customer for items ordered

schedule of accounts payable

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

true or false: purchases + freight in - purchases returns and allowances - purchase discounts = net delivered cost of purchases

true, this is the equation for the net delivered cost of purchases

purchase allowance

when the purchaser keeps the goods but receives a reduction in the price of the goods (supplier issues a credit memorandum for the return or allowance)

freight in account

An expense account showing transportation charges for items purchased.

a company purchases merchandise for $500 plus a freight charge of $50 from a supplier, payment is due in 30 days. this transaction will be recorded with which of the following entries:

- credit to accounts payable for 550 dollars - debit to purchases for 500 dollars - debit to freight in for 50 dollars

a company received a credit memorandum for 100 dollars from a supplier for defective product returned. using a periodic inventory system, this transaction would be recorded with a which of the following entries:

- credit to purchases returns and allowances - debit to accounts payable

transportation in account

See Freight In Account. An account showing transportation charges for items purchased.

perpetual inventory system

larger businesses require up-to-date information of inventories on hand and use the perpetual inventory system. the perpetual inventory system updates both the general ledger merchandise inventory account and inventory items in the inventory ledger with each purchase, sale, and return. using a perpetual inventory system requires a substantial investment in point-of-sale cash registers, scanning devices, back office hardware, and computer software.

purchase requisition

lists the items to be ordered (signed by someone with the authority to approve requests for merchandise, usually the manager of the sales department) - the purchasing dept selects a supplier who can furnish the goods at the competitve price and then issues a purchase order

a company receives a credit memorandum from a supplier for 500 dollars for a defective product returned. using a perpetual inventory system, this transaction will be recorded with a credit to the _________ account in the amount of 500 dollars.

merchandise inventory (a perpetual inventory system records returns to the merchandise inventory account)

a company purchases merchandise inventory for 1000 dollars plus freight of 100 dollars from field supplier co., with credit terms 2/10, n/30. the company will record this transaction in a perpetual inventory system with a debit to:

merchandise inventory for $1,100

receiving report

prepared to show the quantity and the condition of the goods received (the purchasing dept. receives a copy of the receiving report and compares it to the purchase order)

the accounts payable ledger

provides information about the individual accounts for all creditors - is a subsidiary ledger; is separate from and subordinate to the general ledger (contains a separate acc for each creditor, each acc shows purchases, payment, and returns and allowances)

bro bye i dont remember the question

purchase discount = (1500 - 400) x 0.02 = 22; payment = 1500-400-22+100 =1178

purchases account

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

on may 4 roscoe grocery received merchandise costing 3,500 dollars with freight charges of 200 dollars paid by the supplier and added to the invoice, terms 2/10, n/30. some goods were returned, and, on may 11, the supplier issued a credit memo in the amount of 400 dollars. roscoe paid the amount due on may 15 and recorded the transaction with a debit to:

accounts payable

physical inventory

an actual count of units on hand. this system is adequate for smaller businesses

cost of goods sold

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

credit memorandum

reduces the amount that the purchaser owes

purchase returns and allowances account

return of unsatisfactory goods (is a contra expense under cost of goods sold. the normal balance of cost of goods sold accounts is a debit. the account is a complete record of returns and allowances.) - !! the account has a normal credit balance

a company's internal control process should ensure that the person buying is diff from person making payment

t

when the periodic system is used,

the inventory records are only updated when a physical inventory is taken

purchase transactions to the general ledger is done in the same manner as sales transactions

true

sales invoice

A supplier's billing document that is for items ordered and shipped.

Objectives of an internal control system

- create written proof that purchases and payments are authorized ensure that diff people are involved in the process of buying goods, rceiving goods, and making payments 1. all purchases should be made only after proper authorization has been given in writing 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 verif have been made 6. another person should write the check for payment 7. prenumbered forms should be used for pruchase requisitions

a company that uses the periodic inventory system purchases merchandise inventory for 800 dollars plus freight of 80 dollars from sunday supplier co., with credit terms 2/10 n/30. the company will record this transaction with debits and/or credits to the following accounts

- debit to freight in for 80 dollars - debit to purchases for 800 dollars - credit to accounts payable for 880 dollars

the invoice date and credit terms determine when payment is due. the following credit terms often appear on invoices:

- net 30 days, or n/30 means that payment in full is due 30 days after the date of the invoice - net 10 days EOM, or n/10 EOM means that payment in full is due 10 days after the end of the month in which the invoice was issued - 2 percent 10 days, net 30 days, or 2/10, n/30, means that if payment is made within 10 days of the invoice date, the customer can take a 2 percent discount. otherwise, payment in full is due in 30 days. note that discounts are not allowed on any freight portion of the invoice

a company that uses the periodic inventory system purchases merchandise inventory for 500 dollars plus freight of 50 dollars from sunny supplier co., with credit terms 2/10, n/30. the company will record this transaction with a debit to:

- purchases for 500 dollars

wiggleville pet store received merchandise costing 1,250 dollars on may 5, invoice 1100. some goods were damaged, and the supplier granted a 250 dollar purchase allowance on their credit memo 686 of may 10. wiggleyville will record this allowance with a credit to:

- purchases returns and allowances

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.

10, 2, 30