Chapter 6

1. Chapter 6 Purchases and Purchases Journal 采购和采购日记账

2. Now, let’s talk about purchase!

3. Purchase Accounts Asset Liability O’E Revenue Expense + + - = Merchandize Inventory purchase Sales Sales tax payable + + - - + - + - Sales R&A Purchase R&A + - - +

4. Purchase procedures and control Department Purchase requisition Payment Purchase order Accounting Dept Supplier Purchase Dept Delivery Invoice Receiving Dept record Receiving report verification

5. Purchases Journal • Record the purchases of merchandise on account only. • What is the difference between the sales journal and purchases journal? • What is the similarity?

6. Exh. 6-7 Cash Discount/Purchases Discount/Sales Discount A deduction from the invoice price granted to induce early payment of the amount due. Terms Time Due Discount Period Credit Period Full amount less discount Full amount due Purchase or Sale

7. Credit Terms and Cash Discount信贷/信用条件 现金折扣 When manufacturers and wholesalers sell their products on account, the credit terms are stated in the invoice. 2/10, n/30 Read as: “Two ten, net thirty”

8. Credit Terms and Cash Discount 2/10, n/30 Percentage of Discount # of Days Discount Is Available Otherwise, the Full Amount Is Due # of Days when Full Amount Is Due

9. Used by manufacturers and wholesalers to change selling prices without republishing their catalogs. Trade Discount Example Jen Co, Inc. offers a 30% trade discount on orders of 1,000 units or more of their popular product Racer. Each Racer has a list price of $5.25.

10. Recording Purchases at Gross Invoice Price(periodic method) On July 6, Play Clothes purchased $4,000 of merchandise on credit with terms of 2/10, n/30 from Kid’s Clothes. Prepare the journal entry for Play Clothes.

11. Recording Purchases at Gross Invoice Price Purchases are recorded at their gross amounts. Gross Method 总价法 Purchases discounts taken are recorded when payment is made inside the discount period.

12. Recording Purchases at Gross Invoice Price On July 6, Play Clothes purchased $4,000 of merchandise on credit with terms of 2/10, n/30 from Kid’s Clothes. Prepare the journal entry for Play Clothes.

13. Recording Purchases at Gross Invoice Price On July 15, Play Clothes pays the amount due to Kid’s Clothes. Prepare the journal entry for Play Clothes.

14. Recording Purchases at Gross Invoice Price On July 15, Play Clothes pays the amount due to Kid’s Clothes. Prepare the journal entry for Play Clothes. Reduces Purchase $4,000 ´ 98% = $3,920

15. Purchase Discounts After we post these entries, the accounts involved look like this: Purchase Accounts Payable 7/6 4,000 7/6 4,000 7/15 4,000 Bal. 0 Bal. 4,000 Purchase Discounts Cash XXXX 7/15 3920 7/15 80

16. Recording Purchases at Gross Invoice Price Now, assume that Play Clothes waited until July 20 to pay the full amount due to Kid’s Clothes. Prepare the journal entry for Play Clothes.

17. Recording Purchases at Gross Invoice Price Now, assume that Play Clothes waited until July 20 to pay the full amount due to Kid’s Clothes. Prepare the journal entry for Play Clothes.

18. Credit Terms and Cash Discounts Purchases are recorded at their net amounts. Purchase discounts（购货折扣） lost are recorded when payment is made outside the discount period. Net (price) Method 净价法 Slide 6-18

19. Credit Terms and Cash Discounts On July 6, Play Clothes purchased $4,000 of merchandise on credit with terms of 2/10, n/30 from Kid’s Clothes. Prepare the journal entry for Play Clothes. Slide 6-19

20. Credit Terms and Cash Discounts On July 6, Play Clothes purchased $4,000 of merchandise on credit with terms of 2/10, n/30 from Kid’s Clothes. Prepare the journal entry for Play Clothes. $4,000 * 98% = $3,920 Slide 6-20

21. Credit Terms and Cash Discounts On July 15, Play Clothes pays the net amount due to Kid’s Clothes. Prepare the journal entry for Play Clothes. Slide 6-21

22. Credit Terms and Cash Discounts On July 15, Play Clothes pays the net amount due to Kid’s Clothes. Prepare the journal entry for Play Clothes. Slide 6-22

23. Credit Terms and Cash Discounts Now, assume that Play Clothes waited until July 20 to pay the amount due in full to Kid’s Clothes. Prepare the journal entry for Play Clothes. Slide 6-23

24. Credit Terms and Cash Discounts Now, assume that Play Clothes waited until July 20 to pay the amount due in full to Kid’s Clothes. Prepare the journal entry for Play Clothes. Nonoperating Expense Slide 6-24

25. If we fail to take a 2/10, n/30 discount, is it really expensive? Days in a year Number of additional days before payment Percent paid to keep money Managing Discounts 365 days ÷ 20 days × 2% = 36.5% annual rate

26. Exercise • Lamprino Appliance use periodic inventory system. On June 10,Lamprino purchase 10 televisions from Mitsu Industries on account for a total of $3000. the terms of purchase were 2/10,n/30. On June 20, Lamprino paid the account payable. Prepare the journal entries to record these transaction at : net price method Gross method

27. Double Posting • Post from the purchases journal to the subsidiary ledger accounts respectively (Account Payable Ledger) • Post from purchases journal to the controlling account in a summary (Account Payable account in general ledger)

28. Purchases Returns and Allowances Purchases Return . . . Merchandise returned by the purchaser to the supplier. Purchases Allowance . . . A reduction in the cost of defective merchandise received by a purchaser from a supplier.

29. Purchases Returns and Allowances After we post these entries, the accounts involved look like this: Purchases Accounts Payable 3/27 48,000 3/30 5000 3/27 48,000 Bal. 48,000 Bal. 43，000 Purchases Returns and Allowances 3/28 5000

30. Double Posting • Post from the general journals to the subsidiary accounts respectively (Account Payable Ledger) • Post from general journals to the controlling account in a summary (Account Payable account and Purchase R&A in general ledger)

31. Revenue expense expense + - + + - + + - + Sales Purchase + - Sales R&A Purchase R&A - + - Sales Discount Purchase Discount - + -

32. Periodic Inventory System The inventory on hand and the cost of goods sold for the year are not determined until year-end.

33. Average cost Specific identification FIFO LIFO Periodic Inventory System We use one of these inventory valuation methods in periodic inventory system.

34. Oldest Costs Recent Costs First-In, First-Out Method (FIFO)先进先出法 Cost of Goods Sold Ending Inventory

35. Recent Costs Oldest Costs Last-In, First-Out Method (LIFO)后进先出法 Cost of Goods Sold Ending Inventory

36. Specific Identification具体辨认法 When a unitis sold, the specific cost of the unit sold is added to cost of goods sold.

37. Not really. Specific identification is hard to use when we sell a lot of inventory that has lots of different costs. Since specific identification is so easy, can’t we use it all the time?

38. Cost of Goods Available for Sale Units on hand on the date of sale Average-Cost Method平均成本法 When a unit is sold,theaverage cost of each unitin inventory is assigned to costof goods sold. ÷

40. The Principle of Consistency一致性/一贯性原则 Once a company has adopted a particular accounting method, it should follow that method consistently, rather than switch methods from one year to the next.

41. Assignment • Problem2 on page 236

42. Continue…… 6