Procedures for Processing Purchases on Account in Accounting

 
Accounting
 
Chapter 15
Aim
: Explain the procedures for
processing a purchase on account.
Do Now:
Take out your notebook and copy
the Aim.
Take out Problem 15.1
The Purchasing Process
Retail businesses need shopping bags, sales slips, and register
receipts. They must also purchase other supplies, equipment,
and merchandise. The purchase of the latter is divided into
four stages:
requesting needed items
ordering from a supplier
verifying items received
processing the supplier
s invoice
Purchasing Items Needed by a Business
Requesting Needed Items
When a company needs to buy supplies, equipment, or
merchandise, 
a 
purchase requisition
 is prepared to request
to order the specified items
.
 
Ordering from a Supplier
 
Information from the purchase requisition is used to
write a 
purchase order
. The purchase order contains:
quantity
description
unit price
total cost
supplier
s name and address
date needed
shipping method (optional)
Problem 15.1
Verifying Items Received
 
A supplier accepts a purchase order by
shipping the items and billing the buyer for
them.
A shipment includes a 
packing slip
 that lists
all shipped items.
 When a shipment arrives:
The buyer unpacks and checks the
contents against the packing slip.
The buyer reports discrepancies to the
accounting department.
P
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o
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e
s
s
i
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g
 
t
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S
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s
 
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The supplier sends an 
invoice
, or bill, to the
buyer containing the terms and the item
quantity, description, price, and total cost.
The accounting department checks the invoice
against the packing slip and purchase order.
If there are no discrepancies, a 
processing stamp
is placed on the invoice and the invoice becomes
the source for a journal entry
.
 
 
P
r
o
c
e
s
s
i
n
g
 
t
h
e
 
S
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s
 
I
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The Purchases Accounts
Merchandise bought to sell to customers is recorded in
the 
Purchases account
, a temporary account that is
classified as a 
cost of merchandise
 account.
The 
Purchases
 account follows the rules of debit and
credit for expense accounts. It is:
increased by debits,
decreased by credits, and
has a normal debit balance.
 
Purchases
             Debit      Credit
            +          
 
-
 
 
Merchandise Business Project
Day #1
As a group, complete your 
Business Plan
.
Hand in at the end of class.
Aim
: Analyze transactions relating to
the purchase of merchandise.
Do Now:
Take out your notebook and copy
the Aim.
Under the Aim answer: 
Why do
you think a large business needs
to maintain an accounts payable
subsidiary ledger?
What Do You Think?
 
Why do you think a large business needs
to maintain an accounts payable
subsidiary ledger?
 
http://glencoe.com/sites/common_asset
s/accounting/audit_alex/Player.html
Purchases of Assets on Account
The most important thing a retail
business purchases is merchandise to
resell.
Merchandise can be bought on a cash
basis or on account.
The Accounts Payable Subsidiary Ledger
A business that makes many purchases on
credit will set up an 
accounts payable
subsidiary ledger
 with an account for each
creditor or supplier.
The individual accounts are summarized in
the 
Accounts Payable 
general ledger
controlling account.
Merchandise Purchases on Account
When a purchase of merchandise on account is
recorded, a diagonal line is entered in the Posting
Reference column to indicate the amount is posted in
two
 places.
First
 to the 
Accounts Payable
 controlling account.
Then
 to the individual account in the accounts
payable subsidiary ledger.
The invoice is then placed in a 
tickler file (a folder for
each day of the month)
 according to its 
due date.
For example – an invoice due on December 24 is
placed in the “24” folder
 
Analyzing and Recording Purchases on Account
 
Analyzing and Recording Purchases on Account
 
Other Purchases on Account
Purchases Returns and Allowances
A 
purchase return
 
occurs when a business returns
merchandise for a full credit.
A 
purchase allowance
 
occurs when a business keeps
unsatisfactory merchandise but pays a discounted
price.
A 
debit memorandum
 
is used to notify suppliers of a
purchase return or request for purchases allowance.
 
**Purchases Returns and Allowances is a contra cost of
merchandise account.**
 
 
Purchases Returns and Allowances – pg 425
 
Recording a Purchases Returns and Allowances
Transaction
 
 
Assignment
Complete Problem 15.2
You have 5 minutes
 
Problem 15.2
 
Merchandise Business Project
Day #2
As a group, work on #2 and #3 for your
Merchandise Business.
#2 – Develop and Design the Store
#3 - Acquire Merchandise ( from a wholesaler)
#4 – Retail Price List
Aim
: How do I record the different
types of cash payment transactions?
Do Now:
Take out your notebook and copy
the Aim.
Why do you think the accounting
department is responsible for
making cash payments for a
business?
 
Controls over Cash
A business can manage cash payments by following
these procedures:
Require proper authorization of all cash
payments.
Write checks for all payments.
Use prenumbered checks.
Retain and account for voided checks.
 
Recording Cash Purchases of Merchandise
Usually businesses purchase merchandise on account.
Sometimes a business buys merchandise for cash.
 
Recording Cash Purchases of Merchandise
 
 
Prepaid Insurance Account
Businesses purchase insurance to protect against
losses from theft, fire, and flood.
 
An insurance 
premium
 is paid at the beginning of
the covered period and is recorded in the 
Prepaid
Insurance
 asset account.
Prepaid Insurance
             Debit      Credit
            +           
 
-
 
Transportation In Account
The shipping terms define if a buyer will be charged for the
shipment of goods. Shipping terms are stated as:
FOB destination
 – the 
supplier
 pays the shipping cost
FOB shipping point
 – the 
buyer
 pays the shipping cost.
 
 
Recording Bankcard Fees (Expense Account)
Banks charge a 
bankcard fee
 for handling bankcard
sales slips.
 
 
Purchases Discounts
 
The buyer may receive a 
purchases discount
for early payment
.
If the credit terms listed on the invoice are
2/10, n/30, the buyer can receive a 2%
discount if payment is made within 10 days,
the 
discount period
.
If the invoice is not paid within 10 days, the
buyer must pay the net amount within 30 days.
 
Purchases Discount
 
 
 
 
 
 
**Contra Cost of Merchandise Account**
 
Homework Assignment
 
Due Monday 
Complete Problems 15.4 & 15.5
 
Merchandise Business Project
Day #3
As a group, work on your Merchandise Business.
#2 – Develop and Design the Store
Mission statement, business description, etc.
#3 - Acquire Merchandise (from a wholesaler)
Research wholesalers online
#4 – Retail Price List
#5 – Sell Your Merchandise
 Write your transactions
 
*Everything should be typed and printed out.*
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The process of purchasing items for a business involves several steps including requesting needed items, ordering from a supplier, verifying items received, and processing the supplier's invoice. A purchase requisition is prepared to request specific items, a purchase order is written to order from a supplier, items are checked upon arrival, and the supplier's invoice is compared against the packing slip before journal entry. The Purchases account is used to record merchandise bought for sale to customers.


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  1. Accounting Chapter 15

  2. Aim: Explain the procedures for processing a purchase on account. Do Now: Take out your notebook and copy the Aim. Take out Problem 15.1

  3. Purchasing Items Needed by a Business The Purchasing Process Retail businesses need shopping bags, sales slips, and register receipts. They must also purchase other supplies, equipment, and merchandise. The purchase of the latter is divided into four stages: requesting needed items ordering from a supplier verifying items received processing the supplier s invoice

  4. Requesting Needed Items When a company needs to buy supplies, equipment, or merchandise, a purchase requisition is prepared to request to order the specified items.

  5. Ordering from a Supplier Information from the purchase requisition is used to write a purchase order. The purchase order contains: quantity description unit price total cost supplier s name and address date needed shipping method (optional) Problem 15.1

  6. Verifying Items Received A supplier accepts a purchase order by shipping the items and billing the buyer for them. A shipment includes a packing slip that lists all shipped items. When a shipment arrives: The buyer unpacks and checks the contents against the packing slip. The buyer reports discrepancies to the accounting department.

  7. Processing the Supplier s Invoice The supplier sends an invoice, or bill, to the buyer containing the terms and the item quantity, description, price, and total cost. The accounting department checks the invoice against the packing slip and purchase order. If there are no discrepancies, a processing stamp is placed on the invoice and the invoice becomes the source for a journal entry.

  8. Processing the Supplier s Invoice

  9. The Purchases Accounts Merchandise bought to sell to customers is recorded in the Purchases account, a temporary account that is classified as a cost of merchandise account. The Purchases account follows the rules of debit and credit for expense accounts. It is: increased by debits, decreased by credits, and has a normal debit balance. Purchases Debit Credit + -

  10. Merchandise Business Project Day #1 As a group, complete your Business Plan. Hand in at the end of class.

  11. Aim: Analyze transactions relating to the purchase of merchandise. Do Now: Take out your notebook and copy the Aim. Under the Aim answer: Why do you think a large business needs to maintain an accounts payable subsidiary ledger?

  12. What Do You Think? Why do you think a large business needs to maintain an accounts payable subsidiary ledger? http://glencoe.com/sites/common_asset s/accounting/audit_alex/Player.html

  13. Purchases of Assets on Account The most important thing a retail business purchases is merchandise to resell. Merchandise can be bought on a cash basis or on account.

  14. The Accounts Payable Subsidiary Ledger A business that makes many purchases on credit will set up an accounts payable subsidiary ledger with an account for each creditor or supplier. The individual accounts are summarized in the Accounts Payable general ledger controlling account.

  15. Merchandise Purchases on Account When a purchase of merchandise on account is recorded, a diagonal line is entered in the Posting Reference column to indicate the amount is posted in two places. First to the Accounts Payable controlling account. Then to the individual account in the accounts payable subsidiary ledger. The invoice is then placed in a tickler file (a folder for each day of the month) according to its due date. For example an invoice due on December 24 is placed in the 24 folder

  16. Analyzing and Recording Purchases on Account

  17. Analyzing and Recording Purchases on Account

  18. Other Purchases on Account

  19. Purchases Returns and Allowances A purchase return occurs when a business returns merchandise for a full credit. A purchase allowance occurs when a business keeps unsatisfactory merchandise but pays a discounted price. A debit memorandum is used to notify suppliers of a purchase return or request for purchases allowance. **Purchases Returns and Allowances is a contra cost of merchandise account.**

  20. Purchases Returns and Allowances pg 425

  21. Recording a Purchases Returns and Allowances Transaction

  22. Assignment Complete Problem 15.2 You have 5 minutes

  23. Problem 15.2 Date Description Post Ref. Debit Credit 2017

  24. Merchandise Business Project Day #2 As a group, work on #2 and #3 for your Merchandise Business. #2 Develop and Design the Store #3 - Acquire Merchandise ( from a wholesaler) #4 Retail Price List

  25. Aim: How do I record the different types of cash payment transactions? Do Now: Take out your notebook and copy the Aim. Why do you think the accounting department is responsible for making cash payments for a business?

  26. Controls over Cash A business can manage cash payments by following these procedures: Require proper authorization of all cash payments. Write checks for all payments. Use prenumbered checks. Retain and account for voided checks.

  27. Recording Cash Purchases of Merchandise Usually businesses purchase merchandise on account. Sometimes a business buys merchandise for cash.

  28. Recording Cash Purchases of Merchandise

  29. Prepaid Insurance Account Businesses purchase insurance to protect against losses from theft, fire, and flood. An insurance premium is paid at the beginning of the covered period and is recorded in the Prepaid Insurance asset account. Prepaid Insurance Debit Credit + -

  30. Transportation In Account The shipping terms define if a buyer will be charged for the shipment of goods. Shipping terms are stated as: FOB destination the supplier pays the shipping cost FOB shipping point the buyer pays the shipping cost.

  31. Recording Bankcard Fees (Expense Account) Banks charge a bankcard fee for handling bankcard sales slips.

  32. Purchases Discounts The buyer may receive a purchases discount for early payment. If the credit terms listed on the invoice are 2/10, n/30, the buyer can receive a 2% discount if payment is made within 10 days, the discount period. If the invoice is not paid within 10 days, the buyer must pay the net amount within 30 days.

  33. Purchases Discount **Contra Cost of Merchandise Account**

  34. Homework Assignment Due Monday Complete Problems 15.4 & 15.5

  35. Merchandise Business Project Day #3 As a group, work on your Merchandise Business. #2 Develop and Design the Store Mission statement, business description, etc. #3 - Acquire Merchandise (from a wholesaler) Research wholesalers online #4 Retail Price List #5 Sell Your Merchandise Write your transactions *Everything should be typed and printed out.*

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