LESSON 9-1 - Journalizing Purchases Using a Purchases Journal · ... Journalizing Purchases Using a Purchases Journal Service business vs. merchandising business ... Transactions
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LESSON 9-1 - Journalizing Purchases Using a Purchases Journal
Service business vs. merchandising business Service business sells services for a fee – nail salon, attorney Merchandising business purchases and sells goods – t-shirts,
sports equipment Retail merchandising business – sells goods to those who use or
consume the goods (Target, Wal Mart, etc.) Wholesale merchandising business – buys and resells
merchandise to retail merchandising businesses (company that sells merchandise to Target or Wal Mart)
Merchandising business uses many of the same accounts as a service business, but it will have additional accounts for the purchase and sale of merchandise (chart of accounts, pg. 231) – Hobby Schack (p. 235)
Owned by one person – limits resources for the business Corporation – organization with the legal rights of a person and which
many persons may own Formed by receiving approval from a state or federal agency Can own property, incur liabilities, and enter into contracts in its own name
Share of stock – a unit of ownership Capital stock – total shares of ownership Stockholder – an owner of one or more shares of a corporation Biggest difference between proprietorship and corporation is capital
accounts Special Journal – used to record only one kind of transaction
Purchases on account – transaction in which the merchandise purchased is to be paid for later CONCEPT: Historical Cost – actual amount paid for merchandise or
other items bought is recorded Businesses that purchase from many vendors have many accounts for
vendors Accounts Payable summarizes the total amount owed all vendors
Purchases Journal – special journal used to record only purchases of merchandise on account
Special amount column – journal amount column headed with an account title Special amount columns are used for frequently occurring transactions Eliminates writing general ledger account titles in the Account Title
Cash Payments Journal – special journal used to record only cash payment transactions
Cash discount – deduction that a vendor allows on the invoice amount to encourage prompt payment Purchase discount – cash discount on purchases taken by a
customer General amount column – amount column that is not
headed with an account title (ex. Monthly rent) Source document is usually a check
1. Write the journal page number.2. Write the date.3. Write the words Brought Forward in the Account Title column.4. Place a check mark in the Post. Ref. column.5. Record the column totals.
DEBIT MEMORANDUM FOR PURCHASES RETURNS AND ALLOWANCES
Purchase return – credit allowed for the purchase price of returnedmerchandise, resulting in a decrease in the customer’s accountspayable
Purchases Allowance – credit allowed for part of the purchase price of merchandise that is not returned, resulting in a decrease in the customer’s accounts payable Merchandise is damaged but still usable – reduced price
Debit memorandum – form prepared by the customer showing the price deduction taken by the customer for returns and allowances (source document – objective evidence) Customer records the amount as a debit (deduction) to the vendor account
(Accounts Payable) to show decrease in amount owed
Purchase Returns and Allowances – decreases amount of purchases Contra account to Purchases – normal credit balance