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Purchase journals and cash payment journals . Chapter 9 Accounting 1. Do NOW: . Read about Office Max (p. 233) Be prepared to discuss answers to questions Read about corporations (p. 234). Hobby Shack, INC. Owner – Janice Kellogg

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do now
Do NOW:
  • Read about Office Max (p. 233)
    • Be prepared to discuss answers to questions
  • Read about corporations (p. 234)
hobby shack inc
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
hobby shack inc1
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
using special journals
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
hobby shack s special journals
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
purchasing merchandise
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
purchasing merchandise1
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
source document purchase invoice
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
source document purchase invoice1
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.
journalizing in the purchase journal
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
purchasing merchandise on account p 239
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.

practice 9 1
PRACTICE 9-1
  • WT 9-1
  • OYO 9-1
  • App 9-1