Purchase journals and cash payment journals

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

2. Do NOW: • In your notebooks: • Of all accounts in the general ledger, which account do you believe is impacted most? • Why this account in particular? • Do you think this would constitute a special journal?

3. 9-2 Journalizing cash payments using a cash payments journal • Cash payments journal: special journal used to record only cash payment transactions • May be designed to accommodate a business’ frequent cash payment transactions • Special amount column for this general ledger account • Many cash transactions affect accounts payable, so a special amount column is also used for that general ledger account • Source document is usually a check

4. 9-2 Journalizing cash payments using a cash payments journal • Cash discount: deduction vendor allows on invoice amount to encourage prompt payment • Purchase discount: cash discount on purchases taken by a customer • when taken, a customer pays less than invoice amount previously recorded in purchases account • Reduces customer’s cost of merchandise purchased • General amount column: journal amount column not headed with account title

5. The Cash Payments Journal • P. 242 and 243 • Includes: • A general debit and credit column. • For occasional cash transactions, such as rent • 3 special columns • 1. Accounts Payable debit • For payments made on accounts payables • 2. Purchase discount credit • A cash discount received when you pay cash for purchases of merchandise • 3. Cash credit • A deduction given by the vendor to encourage prompt payment • P. 243

6. The Cash Payments Journal • Supplies not recorded in purchases account because supplies aren’t intended for sale • Cash register tapes and price tags are examples of supplies used in a business

7. The Cash Payments Journal

8. The Cash Payments Journal Page 243 • Cash payment for expense • Cash payment for supplies

9. The Cash Payments Journal: Cash payment for Expense (P. 243) November 2. Paid cash for advertising, $150.00. Check No. 292

10. The Cash Payments Journal: Cash payment for SUPPLIES (P. 243) November 6. Paid cash for office supplies, $94.00. Check No. 293

11. The Cash Payments Journal • Cash payment for expense • Cash payment for supplies • Practice: • 9 – 2 WT • Oct 1st and 7th transactions

12. The Cash Payments Journal: Cash Payments for Purchases Page 244 • Cash payment for purchases • Merchandise usually purchased on account (use purchase journal) • Might be cash because • Discounts make it a better choice to pay cash • New customer, so credit not offered by the vendor • Poor paying history, so credit rescinded by the vendor • Business would pay vendor with check before merchandise is shipped or delivered

13. The Cash payments journal • List price: retail price listed in catalog or on Internet site • Trade discount: reduction in list price granted to customers • Given when merchandising business purchases number of products from manufacturer • Invoice amount: amount after trade discount is deducted from list price • only the invoice amount is used in a journal entry

14. The Cash Payments Journal: Cash Payments WITH TRADE DISCOUNTS • Trade discount – Reduces list price • Due to quantities being purchased – the more purchased, the lower the price

15. The Cash Payments Journal: Purchased merchandise for cash (p. 244) November 7. Purchased merchandise for cash $600.00, Check #301.

16. The Cash Payments Journal: Cash payment for SUPPLIESwith discount (P. 243) • Practice: • 9-2 WT • October 11

17. The Cash Payments Journal: Cash Payments for Purchases with a purchase discount Page 245 • Discounts are offered for prompt payment on Merchandise purchases • Invoices will show the terms of sale: • Example: 2/10,n/30 2/10: 2% of the invoice amount may be deducted if paid within 10 days n/30: Net thirty – the total invoice amount must be paid within 30 days

18. The Cash Payments Journal: Cash Payments for Purchases with a purchase discount Example: 2/10,n/30 Calculate: Invoice amount - $1,000 Invoice date – 3/1/2013 Terms 2/10, n/30 • If paid by March 10: Pay discount: $1,000 - $20 = $980 • If paid after March 10: Pay net amount - $1,000 • If paid after March 31: Your payment is late and may result in finance charges

19. The Cash Payments Journal: Cash Payments for Purchases with a purchase discount • Contra account: account that reduces related account on financial statement • Purchases discounts recorded in general ledger account titled Purchases Discount • Purchases discount is contra account to Purchases • Since contra accounts are deductions from related accounts, contra account normal balances are opposite the normal balances of related accounts • Therefore, normal balance of Purchases Discount account is a credit • Even though trade discounts aren’t recorded, cash discounts are recorded

20. Cash payments on account with purchases discounts Page 245 • Purchase Discounts

21. The Cash Payments Journal: Cash Payments for Purchases with a purchase discount Page 245 • Calculate your Purchase Discount: November 8. Paid cash on account to Gulf Craft Supply, $488.04, covering Purchase Invoice No. 82 for $498.00 less 2% discount, $9.96. Check No. 302.

22. The Cash Payments Journal: Cash payment for SUPPLIES (P. 243) November 8. Paid cash on account to Gulf Craft Supply, $488.04, covering Purchase Invoice No. 82 for $498.00 less 2% discount, $9.96. Check No. 302.

23. The Cash Payments Journal: Cash payment for SUPPLIESwith discount (P. 243) • Some vendors don’t offer purchases discounts • Business may not have cash available to take advantage of purchases discount • In both cases, full purchase invoice is paid • Practice: • Finish 9-2 WT • Complete 9-2 OYO