Journalizing Purchases and Cash
Payments
Chapter 9
Merchandising Business Organized as a
Corporation
 How is a Merchandising Business different from a Service
Business?
 How is a Wholesale Merchandising Business different from a
Retail Merchandising Business?
 How is a Corporation different from a Proprietorship?
 Because of the differences noted above, the Accounting is also
different (to some extent)
 For Chapters 9-16, we will be Accounting for a Merchandising
Business which is organized as a Corporation
Special Journals
 Purchases Journal
 For purchases of merchandise on account (P)
 Cash Payments Journal
 For all cash payments (C) or bank service charges (M)
 Sales Journal
 For sales of merchandise on account (S)
 Cash Receipts Journal
 For all cash receipts (R, TS)
 General Journal
 For all other transactions (M, DM, CM)
Purchasing Merchandise
 Merchandising businesses purchase merchandise to
resell to customers
 The business from which the merchandise is purchased is the
vendor
 The price they pay is the cost of merchandise
 The amount added to the cost to establish the selling price is
the markup
Purchasing Merchandise on Account
 Merchandise purchased now but
paid at a later date
 Record in Purchases
Journal
 Purchases – Cost account
included in the Income
Statement accounts
 Purchases has a normal
‘Debit’ balance & is similar to
an expense (but it is
considered a ‘cost of
merchandise’ account)
Chart of Accounts
(5000) Cost of Merchandise
5110 Purchases
5120 Purchases Discount
5130 Purchases Returns &
Allowances
Cash Payments Journal
 For all cash payments (C)
 Paid cash for advertising, rent, etc.
 Paid cash for office or store supplies
 Paid cash on account to vendor
 Purchased merchandise for cash
 Has General Debit and Credit columns
 Has 3 Special Amount columns
1.
2.
3.
Accounts Payable Debit
Purchases Discount Credit*
Cash Credit
Trade Discount vs. Cash Discount
Trade Discount
 Discount (reduction) off list price




granted to good customers
Usually a high discount % (i.e.
30%, 40%, 50%, 60%)
List price minus the trade
discount equals the Net Invoice
amount
Record only the Net Invoice
amount***
No G/L account for the Trade
Discount (not recorded)
Cash Discount
 Discount offered for early
payment on invoice
 Terms of purchase – 2/10, n/30
 Take 2% off if paid in 10 days or
pay full balance in 30 days
 Recorded as a Purchase
Discount (G/L account)
 Contra account to Purchases
 It has a ‘Credit’ balance
Trade Discount vs. Cash Discount
Trade Discount
 Paid Cash for Merchandise
with a list price of $3,000,
less a 40% trade discount
List Price
$3,000
Trade Discount 40% x .40
Trade Discount
- $1,200
Net Invoice
$1,800 *
Cash Discount
 Paid Cash on Account to
ABC Co. , covering P29 for
$1,200, less a 2% cash
discount
P29
Cash Discount 2%
Cash Discount
Amount Paid
$1,200*
x . 02
$24*
$1,176*
Additional Cash Payment Journal Transactions
 Completing a Petty Cash report (see page 248)
 Petty Cash Fund (used for small cash payments)
 New G/L Account – Cash Short and Over
 Cash Short (amount on hand is less than recorded amount –
record as a Debit)
 Cash Over (amount on hand is more than recorded amount –
record as a Credit)
 When replenishing the petty cash fund, do not use the Petty
Cash account
 Debit accounts (i.e. Supplies-Office, Miscellaneous Expense, etc.)
 Debit or Credit Cash Short and Over
 Credit Cash
Additional Cash Payment Journal Operations
 Totaling the Journal (using more than 1 page in a month) – see
pages 250 & 251
 On the last line of the Cash Payment Journal, you will total the
journal
 On the Account Title line, you will type ‘Carried Forward’ and record totals
 The totals from the previous page will be then be transferred to
the top of the next journal page.
 On the Account Title line, you will type ‘Brought Forward’ and input totals
from previous page
 After the last journal entry for the month, you will again total the
journal
 On the Account Title line, you will type ‘Totals’ and record the totals
 You will have to prove that the debits and credits are equal using the
table below the Cash Payment Journals
General Journal Transactions
1.
Buying supplies on account (M)
Debit
2.
Supplies-Store or Supplies-Office
Credit
Accounts Payable/Vendor **
To record Purchases Returns and Allowances (contra account
to Purchases – it has a ‘Credit’ balance)
 Source document: Debit Memorandum (DM) – form prepared by
customer showing the deduction taken as a debit to the vendor account
Debit
Accounts Payable/Vendor **
Credit
Purchases Returns and Allowances
** In the Post Ref. column include a ‘/’
Chapter 9 Review
 Purchases Journal
 Purchased merchandise from vendor on account (P)
 Cash Payments Journal – all cash payments (C)
 Paid cash for merchandise with list price, less trade discount
(calculate & deduct, but do not record trade discount)
 Purchased merchandise for cash
 Paid cash on account to vendor, less cash discount (calculate and
record as Purchase Discount)
 Paid cash on account to vendor, no cash discount
 Paid cash for store supplies or office supplies
 Paid cash for advertising, rent, etc.
 Paid cash to replenish petty cash fund (Cash Short & Over)
 General Journal – all other transactions (M, DM)
 Bought office supplies on account from vendor
 Returned merchandise to vendor for credit
Chapter 9 Review
1.
What type of account is Purchases? Normal balance side?
Cost account
2.
What type of accounts are both Purchases Discount and
Purchases Returns and Allowances? Normal balance side?
Contra accounts
3.
Debit side
Credit side
What is the source document for a Purchase Return and
Allowance?
Debit Memorandum (DM)
Chapter 9 Review
4.
5.
Merchandise is purchased for $2,000 on March 5th with
terms 2/10,N/30.What is the amount due on
March 11
________
March 17
________
Merchandise with a list price of $3,000 is purchased on
account for $1,800 on May 1.Terms are 1/15,N/30. How
much is due if paid on May 20th?
$1,800
Chapter 9 Test
 Matching (terms to know)
capital stock
corporation
cash discount
debit memorandum
purchase invoice purchase discount
purchase return retail merchandising business
share of stock
special journal
 True False – 8
 Recording Transactions in Journals
 Purchases, Cash Payments, General Journal
 Multiple Choice - 8
Chapter 9 Review
1.
What type of account is Purchases? Normal balance side?
2.
What type of accounts are both Purchases Discount and
Purchases Returns and Allowances? Normal balance side?
3.
What is the source document for a Purchase Return and
Allowance?
Chapter 9 Review
4.
5.
Merchandise is purchased for $2,000 on March 5th with
terms 2/10,N/30.What is the amount due on
March 11
________
March 17
________
Merchandise with a list price of $3,000 is purchased on
account for $1,800 on May 1.Terms are 1/15,N/30. How
much is due if paid on May 20th?
Chapter 9 Test
 Matching (terms to know)
capital stock
corporation
cash discount
debit memorandum
purchase invoice purchase discount
purchase return retail merchandising business
share of stock
special journal
 True False – 8
 Recording Transactions in Journals
 Purchases, Cash Payments, General Journal
 Multiple Choice - 8
Transactions Review
 Paid cash on account to ABC Co., $1,830.00,
covering P88 for $1,980.00, less DM67,
$150.00; no discount. C92.
 Paid cash to XYZ Corp for merchandise with a
list price of $800.00, less a 60% trade discount.
C94.
 Paid cash on account to BBC Adventures,
$1,372.00, covering P90 for $1,400.00, less
2% discount, $28.00. C99.