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College Accounting First Canadian Edition Price • Haddock • Brock • Hahn • Reed. McGraw-Hill Ryerson. 1. CHAPTER 7. ACCOUNTING FOR MERCHANDISE PURCHASES, ACCOUNTS PAYABLE AND CASH PAYMENTS. 2. JOURNALS. Type of Journal. Purpose. Sales.

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slide1

College

Accounting

First Canadian Edition

Price • Haddock • Brock • Hahn • Reed

McGraw-Hill Ryerson

1

slide2

CHAPTER 7

ACCOUNTING FOR MERCHANDISE PURCHASES, ACCOUNTS PAYABLE AND CASH PAYMENTS

2

slide3

JOURNALS

Type of Journal

Purpose

Sales

To record sales of merchandise on credit

Purchases

To record purchases of merchandise on credit

Cash receipts

To record cash received from all sources

Cash payments

To record all disbursements of cash

General

To record all transactions that are not recorded in another special journal and all adjusting and closing entries

3

slide4

LEDGERS

Type of Ledger

Content

General

Assets, liabilities, owner’s equity, revenue, and expense accounts

Accounts receivable

Accounts for credit customers

Accounts payable

Accounts for creditors

4

slide5

FASHION WORLD

Chart of Accounts

  • ASSETS OWNER’S EQUITY
  • 1001 Cash 3001 Carolyn Wells, Capital
  • 1005 Petty Cash Fund 3002 Carolyn Wells, Drawing
  • 1009 Notes Receivable 3099 Income Summary
  • 1011 Accounts Receivable REVENUE
  • 1012 Allowance for Doubtful Accounts 4001 Sales
  • 1016 Interest Receivable 4051 Sales Returns and Allowances
  • 1021 Merchandise Inventory 4091 Interest Revenue
  • 1023 Prepaid GST 4093 Miscellaneous Revenue
  • 1024 GST Payable EXPENSES
  • 1026 Prepaid Insurance 5001 Cost of Goods Sold
  • 1027 Prepaid Interest 5011 Sales Salaries Expense
  • 1029 Supplies 5014 Advertising Expense
  • 1031 Store Equipment 5017 Supplies Expense
  • 1032 Accumulated Amortization-Store Equipment 5020 Cash Over or Short
  • 1041 Office Equipment 5026 Amortization Expense - Store Equipment
  • 1042 Accumulated Amortization-Office Equipment 5035 Rent Expense
  • LIABILITIES 5036 Insurance Expense
  • 2001 Notes Payable-Trade 5038 Utilities Expense
  • 2002 Notes Payable –Bank 5041 Office Sales Expense
  • 2005 Accounts Payable 5044 Payroll Taxes Expense
  • 2016 Interest Payable 5053 Telephone Expense
  • 2021 Canada Pension Plan Payable 5056 Uncollectible Accounts Exp.
  • 2022 Employee Benefits Payable 5059 Amortization Exp. – Office Equipment
  • 2023 Employee Income Taxes Payable 5091 Interest Expense
  • 2025 Employment Insurance Payable 5093 Miscellaneous Expense
  • 2029 Salaries Payable
  • 2031 Sales Tax Payable

5

slide6

FASHION WORLD

5001 S. Portland

Hamilton, ON

No. FC-736

PURCHASE REQUISITION

DEPARTMENT Juniors DATE OF REQUEST June 4, 20X2

ADVISE ON DELIVERY Mr. Johnson DATE REQUIRED July 6, 20X2

QUANTITYDESCRIPTION

100 Designer beaded jeans

APPROVED BYREQUESTED BY

FOR PURCHASING DEPT. USE ONLY

PURCHASE ORDER NO. 8001 ISSUED TO: LaShawn’s Fashion Design

DATEJUNE 6, 20X2 1010 N. Michigan

Quebec, PQ

6

slide7

FASHION WORLD

5001 S. Portland

Hamilton, ON

PURCHASE ORDER

TO: LaShawn’s Fashion

Designs DATE: June 6, 20X2

1010 N. Michigan ORDER NO.: 8001

Quebec, PQ SHIPPED BY: 2/10, n/30

QUANTITY

DESCRIPTION

UNIT PRICE

TOTAL

100

Designer beaded jeans

40

00

4,000

00

7

slide8

LaShawn’s Fashion Designs

1010 N. Michigan

Montreal, PQ

No. 4201

INVOICE

SOLD Fashion World DATE: June 30,20X2

TO: 5001 S. Portland ORDER NO.: 8001

Hamilton, ON SHIPPED BY: North Freight Line TERMS: 2/10, n/30

YOUR ORDER NO. SALESPERSON TERMS

8001 2/10, n/30

DATE SHIPPED SHIPPED BY FOB

June 30, 20X2 North Freight Line Chicago

QUANTITY DESCRIPTION UNIT PRICE TOTAL

100 Designer beaded jeans 40 00 4,000.00

Freight 40.00

GST 282.80

Total 4,322.80

8

slide9

FREIGHT IN

The seller can bill the buyer and add the cost of transportation to the invoice.

OR

The buyer can pay the freight charges directly to the freight company.

9

slide10

PURCHASING PROCEDURES

Sales Department

sends authorized Purchase Requisition

to Purchasing Department.

Purchasing Department

issues authorized Purchase Order and sends to

selected supplier.

Receiving Report is

prepared when merchandise is received;

Purchasing Department

audits the supplier’s Invoice, or bill.

Purchasing Department

contacts supplier if merchandise is defective.

The Accounting Department

is given a copy of Invoice, Purchase Order, and Receiving Report to recheck. They then issue a cheque to supplier and record payment.

10

slide11

GENERAL JOURNAL

PAGE 1

DATE DESCRIPTION POST. DEBIT CREDIT

REF.

2

4

20X3

Jan.

Merchandise Inventory

Prepaid GST

Accounts Payable

Purchased merchandise from

Prestige Clothing Store, Invoice 43480, dated Dec. 28,

terms 2/10, n/30

Merchandise Inventory

Prepaid GST

Accounts Payable

Purchased merchandise from Wholesale Fashion Shop,

Invoice 633, dated Dec. 30, terms n/30

1,625.00

113.25

1738.75

1,810.00

126.70

1,936.70

Merchandise Inventory

Prepaid GST

Accounts Payable

Purchased merchandise from Clothes-R-Us, Invoice

8090, dated Dec. 31, terms n/30

Merchandise Inventory

Prepaid GST

Accounts Payable

Purchased merchandise from Quality Clothes, Invoice

1234, dated Dec. 31, terms 2/10, n/30

5

1,460.00

102.20

1,562.20

6

2,350.00

150.50

2,300.50

1021

1023

2005

1021

1023

2005

1021

1023

2005

1021

1023

2005

11

slide12

ACCOUNT Accounts Payable ACCOUNT NO. 2005

DATE EXPLANATION POST. DEBIT CREDIT BALANCE

REF. DEBIT CREDIT

20X3

Jan. 1 Balance  2,700.00

2 J1 1,738.75 4,438.75

4 J1 1,936.70 6,375.45

5 J1 1,562.20 7,937.65

6 J1 2,300.50 10,238.15

12

slide13

ACCOUNT Prepaid GST ACCOUNT NO. 1023

DATE EXPLANATION POST. DEBIT CREDIT BALANCE

REF. DEBIT CREDIT

20X3

2 J1 113.25 113.25

4 J1 126.70 239.95

5 J1 102.20 342.15

6 J1 150.50 492.65

13

slide14

OBJECTIVE 1

Record purchases of

merchandise on credit

in a four-column

purchases journal.

14

slide15

PURCHASES JOURNAL

PAGE 1

A purchases journal is used to record the purchase of merchandise on account.

The purchases account is used only for the purchase of merchandise for resale.

15

slide16

PURCHASES JOURNAL

PAGE 1

The invoice number column contains the number of the invoice sent to Fashion World by the vendor.

16

slide17

PURCHASES JOURNAL

PAGE 1

Look at the terms for Prestige Clothing Store---2/10, n/30 means that if you want to receive a 2% discount you must pay within 10 days; otherwise, you must pay the full amount within 30 days.“N” stands for the net amount of the invoice.

17

slide18

OBJECTIVE 2

Post from the four-column

purchases journal to the

general ledger accounts.

18

slide19

ACCOUNT Merchandise Inventory ACCOUNT NO. 1021

DATE EXPLANATION POST. DEBIT CREDIT BALANCE

REF. DEBIT CREDIT

20X3

Jan. 31 P1 8,610.00 8,610.00

PURCHASES JOURNAL

PAGE 1

((1021)

19

slide20

ACCOUNT Freight In ACCOUNT NO. 5006

DATE EXPLANATION POST. DEBIT CREDIT BALANCE

REF. DEBIT CREDIT

20X3

Jan. 31 P17 765.00 765.00

PURCHASES JOURNAL

PAGE 1

20

slide21

ACCOUNT Prepaid GST ACCOUNT NO. 1023

DATE EXPLANATION POST. DEBIT CREDIT BALANCE

REF. DEBIT CREDIT

20X3

Jan. 31 P1 655.75 655.75

PURCHASES JOURNAL

PAGE 1

(1023)

21

slide22

ACCOUNT Accounts Payable ACCOUNT NO. 2005

DATE EXPLANATION POST. DEBIT CREDIT BALANCE

REF. DEBIT CREDIT

20X3

Jan. 1 Balance  2,700.00

Jan. 31 P1 10,031.25 12,731.25

PURCHASES JOURNAL

PAGE 1

(2005)

22

slide23

Name Clothes-R-Us Terms n/30

Address 1002 Valley Street, Regina, Saskatchewan

DATE EXPLANATION POST. DEBIT CREDIT BALANCE

REF.

20X3

Jan. 1 Balance  400.00

5 Inv. 8090, 12/31/X2 P1 1,562.20 1,962.20

23

slide24

OBJECTIVE 3

Post purchases on credit

from the purchases journal

to the accounts payable

subsidiary ledger.

24

slide25

Name Clothes-R-Us Terms n/30

Address 1002 Valley Street, Regina, Saskatchewan

DATE EXPLANATION POST. DEBIT CREDIT BALANCE

REF.

20X3

Jan. 1 Balance  400.00

5 Inv. 8090, 12/31/X2 P1 1,562.20

1,962.20

CREDIT BALANCE

ACCOUNTS PAYABLE SUBSIDIARY LEDGER

25

slide26

ACCOUNTS PAYABLE SUBSIDIARY LEDGER

Name Clothes-R-Us Terms n/30

Address 1002 Valley Street, Regina, Saskatchewan

DATE EXPLANATION POST. DEBIT CREDIT BALANCE

REF.

20X3

Jan. 1 Balance  400.00

1962.20

5 Inv. 8090, 12/31/X2 P1 1,562.20

17 CM 37 J1 267.50 1694.70

26

slide27

OBJECTIVE 4

Record purchases returns

and allowances in the

general journal.

27

slide28

CREDIT

BALANCE

Name Clothes-R-Us Terms n/30

Address 1002 Valley Street, Regina, Saskatchewan

DATE EXPLANATION POST. DEBIT CREDIT BALANCE

REF.

20X3

Jan. 1 Balance  400.00

5 Inv. 8090, 12/31/X2 P1 1,562.20 1,962.20

17 CM 37 J1 267.50 1,694.70

Accounts Payable Subsidiary Account

28

slide29

1. Fashion World received merchandise from Clothes-R-Us on January 5, 20X3.

2. Fashion World finds some of the merchandise is damaged.

3. Clothes-R-Us agrees to accept the return of damaged goods.

4. Clothes-R-Us issues Fashion World a credit memo.

22

29

slide30

OBJECTIVE 5

Post purchases returns and

allowances from the general

journal to the accounts

payable subsidiary ledger.

30

slide31

GENERAL JOURNAL

PAGE 1

DATE DESCRIPTION POST. DEBIT CREDIT

REF.

20X3

2005/ 267.50

1021 250.0

1023 17.50

Jan.

17

Accounts Pay./Clothes-R-Us

Merchandise Inventory

Prepaid GST

Received Credit Memo 37 for

damaged merchandise that was

returned; original purchase made

on Invoice 8090, Jan. 5, 20X3

31

slide32

OBJECTIVE 6

Record cash payments

in a cash payments

journal.

32

slide35

When there is a cash discount, four elements must be recorded.

1. The total amount of the purchase (as a debit to Accounts Payable).

2. The amount of the discount (as a credit to Merchandise Inventory).

3. The amount of GST avoided (as a credit to Prepaid GST).

4. The amount of cash paid out (as a credit to Cash).

35

slide36

GENERAL JOURNAL

PAGE 15

DATE DESCRIPTION POST. DEBIT CREDIT

REF.

20X2

1401.87

98.13

1500.00

Aug

1

Store Equipment

Prepaid GST

Notes Payable

Issued a 6 month note to Allen new

Equipment Company for purchase

of store fixtures

36

slide37

The cash payment journal provides the same kind of benefits as other special journals.They are:

1. It simplifies and speeds up both the journalizing and posting of cash payments.

2. It permits division of labour because several members of the accounting staff can record transactions in different special journals at the same time.

3. It improves the audit trail because all cash payments are grouped together in one record and are listed by cheque number.

37

slide38

OBJECTIVE 7

Post from the cash

payments journal to

subsidiary and general

ledgers.

38

slide39

Name Prestige Clothing Store Terms 2/10,n/30

Address 1220 Valley Street, Regina, Saskatchewan

DATE EXPLANATION POST. DEBIT CREDIT BALANCE

REF.

20X3

Jan. 1 Balance  550.00

2 P1 1,738.75 2,288.75

12 CP1 1,738.75 550.00

29 CP1 200.00 350.00

39

slide40

CASH PAYMENTS JOURNAL

PAGE 1

ACCOUNT Prepaid GST ACCOUNT NO. 1023

DATE EXPLANATION POST. DEBIT CREDIT BALANCE

REF. DEBIT CREDIT

20X3

Jan. 31 P1 655.75 655.75

31 CP1 245.70 7.08 894.37

ACCOUNT Cash ACCOUNT NO. 1001

DATE EXPLANATION POST. DEBIT CREDIT BALANCE

REF. DEBIT CREDIT

20X3

Jan. 1 Balance  5,600.00 31 CR1 10,031.25 12,731.25

31 CR1 15,256.37

(2005)

X

(1023)

(1023)

(1021)

(1001)

40

slide41

CASH PAYMENTS JOURNAL

PAGE 1

(2005)

X

(1023)

(1023)

(1021)

(1001)

ACCOUNT Merchandise Inventory ACCOUNT NO. 1021

DATE EXPLANATION POST. DEBIT CREDIT BALANCE

REF. DEBIT CREDIT

20X3

Jan. 31 P1 8,610.00 8,610.00

31 CP1 101.10 8,508.90

ACCOUNT Accounts Payable ACCOUNT NO. 2005

DATE EXPLANATION POST. DEBIT CREDIT BALANCE

REF. DEBIT CREDIT

20X3

Jan. 1 Balance  2,700.00 31 P1 10,031.25 12,731.25

31 CP1 6,708.85 6.022.40

41

slide42

Name Clothes-R-Us Terms n/30

Address 1002 Valley Street, Regina, Saskatchewan

DATE EXPLANATION POST. DEBIT CREDIT BALANCE

REF.

20X3

Jan. 1 Balance  400.00

5 Inv. 8090, 12/31/X2 P1 1,562.20 1,962.20

12 CP1 600.00 1,362.20

17 CM 37 J1 267.50 1,094.70

Name Clothing Centre Terms 2/10, n/30

Address 1111 Katie Avenue, Regina, Saskatchewan

DATE EXPLANATION POST. DEBIT CREDIT BALANCE

REF.

20X3

Jan. 18 Inv. 8979, 12/27/X2 P1 1,123.50 1,123.50

42

42

slide43

Name Family Fashions Terms n/30

Address 9927 Old Canton Road, Regina, Saskatchewan

DATE EXPLANATION POST. DEBIT CREDIT BALANCE

REF.

20X3

Jan. 1 Balance  750.00

10 CP1 500.00 250.00

22 Inv. 8597, 12/31/X2 P1 1,369.60 1,619.60

31 CP1 1,369.60 250.00

Name Prestige Clothing Store Terms 2/10, n/30

Address 1220 Valley Street, Regina, Saskatchewan

DATE EXPLANATION POST. DEBIT CREDIT BALANCE

REF.

20X3

Jan. 1  550.00

2 P1 1,738.75 2,288.75

12 CP1 1,738.75 550.00

29 CP1 200.00 350.00

42

43

slide44

Name Quality Clothes Terms 2/10, n/30

Address 808 Spring Hill Road, Regina, Saskatchewan

DATE EXPLANATION POST. DEBIT CREDIT BALANCE

REF.

20X3

Jan. 1 Balance  600.00

6 Inv. 1234, 12/31/X2 P1 2,300.50 2,900.50

16 CP1 2,300.50

Name Wholesale Fashion Shop Terms n/30

Address 3300 Prairie Circle Road, Regina, Saskatchewan

DATE EXPLANATION POST. DEBIT CREDIT BALANCE

REF.

20X3

Jan. 1 Balance  400.00

4 Inv. 633, 12/30/X2 P1 1,936.70 2,336.70

42

44

slide45

A Schedule of Accounts Payable and the Accounts Payable Account

FASHION WORLD

Schedule of Accounts Payable

January 31, 20X3

Clothes-R-Us 1094.70

Clothing Centre 1123.50

Family Fashions 250.00

Prestige Clothing Store 350.00

Quality Clothes 600.00

Wholesale Fashion Shop 2336.70

Total 5754.90

ACCOUNT Accounts Payable ACCOUNT NO. 2005

DATE EXPLANATION POST. DEBIT CREDIT BALANCE

REF. DEBIT CREDIT

20X3

Jan. 1 Balance  2,700.00

17 J1 267.50 2,432.50

Jan.31 P1 10,031.25 12,463.75

31 CP1 6,708.85 5,754.90

45

slide46

OBJECTIVE 8

Prepare a schedule

of accounts payable.

46

slide47

OBJECTIVE 9

Demonstrate a knowledge

of the procedures for

effective internal control

of merchandise inventory.

47