Accounting 100Chapter 8Chapter 8

Accounting for Purchases and Accounts Payable

Source Documents

Purchases Requisition– Lists items needed

– Internal document Purchase Order

– External

– Sent to Supplier

Source Documents

Purchases Requisition– Lists items needed

– Internal document Purchase Order

– External

– Sent to Supplier

Source Documents

Receiving Report– Shows items received

Invoice– From supplier showing what was

shipped

– Compared with the receiving report

Purchases Journal

Used for merchandise purchased on credit More efficient than General Journal

– Fewer postings to general ledger– Speed up recording time for transactions

Purchase Journal Format (3-Column)– Accounts Payable - Credit– Purchases - Debit– Freight-in Debit

Posting Process

Each transaction is posted to a supplier account at the time of the transaction.– Posted to the credit side on the account

Summary postings are made monthly.– Account Payable - Credit

– Purchases - Debit

– Freight-in - Debit

Pop Quiz #1 - True or False?

True

True

A purchase requisition states what the buyer wishes to purchase.

The invoice is the bill that comes after goods are shipped or received.

Pop Quiz #1- True or False?

False

False

False

Freight-In is a selling expense for the business that purchases the item shipped.

A purchases journal is used to record all purchases that a business makes.

Purchases is a balance sheet account.

Accounts Payable Ledger

Subsidiary Ledger - Separate/Subordinate to General Ledger– Lists the name of all creditors (suppliers)

Balances are presumed to be credit balances– Circled balances can be used to indicate debit

Postings to this ledger are made daily from– Purchases Journal– General Journal

Purchases Returns & Allowances

Contra expense account– Normal credit balance

– Control Account - Purchases Returns:

– Merchandise returned for credit Allowances:

– Price reduction for inferior merchandise

General Journal Entry

When a company returns or receives an allowance for merchandise the following entry is made:

Accounts Payable / Supplier xx

Purchases Ret. & Allow xx

Credit Memo #xx Three postings are required for this entry.

Schedule of Accounts Payable

Lists amounts (balances) owed to creditors. Suppliers are listed in alphabetical order. Total is compared to the balance in

Accounts Payable in the General Ledger. Accounts Payable (General Ledger) is the

control account and is the link between the two ledgers.

Cost of Purchases

Purchases Freight In Purchases Returns & Allowances

Purchases + Freight In

- Purchases Returns & Allowances

= Delivered Cost of Purchases

Calculating Purchases. . .

A truckload of 20 washing machines were purchased at a cost of $100 per machine. The cost of the freight to deliver these machines was $100. One of the washing machines was returned to the supplier because it was defective.

What is the cost of this purchase?

Pop Quiz #2 - True or False?

True

False

A purchases discount is given to encourage prompt payment.

Good internal control of purchasing means giving salespeople the authority to order merchandise.

Pop Quiz #2 - True or False?

False

True

The total from the purchases journal on accounts payable is posted to inventory.

Freight In must be added to purchase cost to determine true cost of purchases.