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Chapter 8Chapter 8
Purchasing/Human Purchasing/Human Resources/Payment Resources/Payment Process: Recording and Process: Recording and Evaluating Expenditure Evaluating Expenditure Process ActivitiesProcess Activities
• Return or allowance Debit Accounts Payable Credit Inventory
• Freight or insurance on purchases Debit Inventory Credit Accounts Payable (Cash)
8-9
What is the Difference between the Net Price and Gross Price Methods?What is the Difference between the Net Price and Gross Price Methods?
• Net price Purchases and purchase
returns/allowances are recorded net of the available discount
Discounts lost are recorded separately
• Gross price Purchases and purchase
returns/allowances are recorded at the gross price
Discounts taken are recorded separately
8-10
What is the Basic Flow of Information in the Payroll Process?What is the Basic Flow of Information in the Payroll Process?
• Employees record time worked on time cards and factory records time worked on time tickets
• Timekeeping compares time cards and time tickets
• Payroll records time worked, deductions, etc.
• Accounts payable approves payroll and notifies cashier
• Cashier pays employees
8-11
What is the Difference between Gross and Net Pay from the Employer’s Point of View?What is the Difference between Gross and Net Pay from the Employer’s Point of View?
• Gross pay—salary and wage expense (amount incurred in an attempt to generate revenue)
• Net pay—cash outflow to employees
• Withholdings—liabilities to pay the entity to which the funds belong
8-12
What is the Difference between Salary/Wage Expense and Payroll Tax Expense?What is the Difference between Salary/Wage Expense and Payroll Tax Expense?
• Salary/wage expense—expense incurred from using employees in an attempt to generate revenue
• Payroll tax expense—expense incurred due to having employees (matching FICA and unemployment taxes)
8-13
When are Expenses Recognized?When are Expenses Recognized?
• When incurred, regardless of when cash is paid. Assume December 31 year for examples that follow. Example #1—receive a utility bill in December,
pay the bill in January, expense is recognized in ?
• December Example #2—pay insurance for 6 months in
November, recognize 2 months of insurance expense in ?
• December Example #3—pay the local newspaper in
December for an ad to be run in December, recognize expense in ?
• December
8-14
How are Expenditure Process Activities Communicated to Users?How are Expenditure Process Activities Communicated to Users?
• Income statement Discounts lost, Loss on Inventory, other
expenses Cost of goods sold (Chapter 10)
• Balance sheet Ending balance of inventory, other
assets, and liabilities
• Statement of cash flows Cash paid for inventory and other
expenditure process items
8-15
How can we Estimate the Cash Paid for Inventory?How can we Estimate the Cash Paid for Inventory?