CHAPTER 1 NOTES
PAGES 12-16
 Departmental Accounting System: an accounting system showing
accounting information for two or more departments
o Gross Profit is calculated for each department
 Merchandising Business: a business that purchases and sells
goods
o May have two types of equipment:
 equipment purchased for sale to customers
 equipment used in the operation of the business
 All departmental purchases of merchandise on account are
recorded in a PURCHASES JOURNAL.
o Each purchase invoice has a notation placed on it showing
to which department the purchase applies.
o Each department has a separate Purchases Debit column in
the Purchases Journal.
 Journalizing Purchases on Account
 Posting from a Purchases Journal
 Posting the Totals of a Purchases Journal
 Journalizing Purchases Returns and Allowances
o When merchandise is returned to a vendor, the vendor’s
account and Accounts Payable are reduced by a debit.
o An allowance may also be given for merchandise that is not
returned.
o Debit Memorandum: A form prepared by the customer
showing the price deduction for purchase returns and
allowances
o Contra Account: An account that reduces a related account
on a financial statement
 Purchases Returns and Allowances would be
considered a contra cost account