1. Purchase journals and cash payment journals Chapter 9 Accounting 1

2. Do NOW: • Read about Office Max (p. 233) • Be prepared to discuss answers to questions • Read about corporations (p. 234)

3. Hobby Shack, INC. • Owner – Janice Kellogg • Sells a wide variety of art and hobby supplies to individuals, schools, and businesses • Corporation • Has stockholders who have invested • Exists independent of its owners • Will continue beyond Janice’s lifetime

4. Hobby Shack, INC. • A merchandising business • Merchandise – goods that a business purchases to sell • Merchandising business – a business that purchases and sells goods • Retail merchandising business – buys and sells merchandise to those who consume the goods • Wholesale merchandising business – buys and resells merchandise to retail merchandising businesses

5. USING SPECIAL JOURNALS • There are many kinds of journals that can be used and the choice depends on the needs of the business. • The greater a business’s daily transactions, the more “special journals” that may be used • Special Journal – a journal used to record only one kind of transaction

6. HOBBY SHACK’s SPECIAL JOURNALS Hobby Shack uses five (5) special journals • Purchase Journals • All purchases of merchandise on account • Cash Payment Journal • All cash payments • Sales Journal • All sales of merchandise on account • Cash Receipts Journal • All cash receipts • General Journal • All other transactions

7. PURCHASING MERCHANDISE • Vendor – a business from which merchandise is purchased or supplies or other assets are bought • Cost of merchandise – the price a business pays for goods it purchases to sell • Selling price must be greater than cost of merchandise for business to make profit • Markup: amount added to cost of merchandise to establish selling price • Only markup increases capital

8. Purchasing merchandise • Costs of merchandise are kept separately • Chart of Accounts, p. 231 • 5000 accounts • “Purchases” – A temporary account used for purchasing merchandise ONLY • Debit increases, Credit decreases (p. 236) • Normal debit balance because it takes from capital • Accounting Concept Historical Price • Applied when actual amount paid for merchandise or other items bought is recorded

9. SOURCE DOCUMENT: Purchase INVOICE • Pay cash for merchandise OR • Purchase on account – a transaction in which the merchandise purchased is to be paid for later • Accounts payable account (p. 236) • Purchases journal – special journal used to record only purchases of merchandise on account • Amount column has two account titles in heading: • Purchases Dr. • Accts. Pay. Cr. • Special amount column – journal amount column headed with account title ; used for frequently occurring trans. • Eliminates writing general ledger account titles in Account Title Column and saves time

10. SOURCE DOCUMENT: Purchase INVOICE • All purchases on account transactions are recorded in purchases journal • If purchase made for cash, transaction NOT recorded in purchases journal • Every purchase on account will have a purchase invoice • This is a form describing goods sold, quantity, and price and is used as a source document for recording a purchase on account transaction (Objective Evidence) • Review p. 238 • Steps to “check” a purchase invoice: • Stamp date received • Place check mark by each amount • Initial total • Review terms of sale: agreement between buyer and seller about pmt.

11. The purchase journal

12. Journalizing IN the purchase journal • All transactions recorded in purchase journal are a debit of purchases and a credit of accounts payable • Must always write the vendor name in the account title column • Always total and rule at the end of the month • Review p. 239 and 240

13. PURCHASING MERCHANDISE ON ACCOUNT (p. 239) November 2. Purchased merchandise on account from Crown Distributing, $2,039.00. Purchase Invoice No. 83. At the end of the month, the Purchases Journal is totaled and ruled.

14. PRACTICE 9-1 • WT 9-1 • OYO 9-1 • App 9-1