CH 15 SEC 2 ANALYZING AND RECORDING PURCHASES

Learning Objectives What you will learn: � How the accounts payable subsidiary ledger is

Analyzing Purchases of Assets on Accounts Payable Subsidiary Ledger General Ledger Accounts Receivable—controlling account

Recording the Purchase of Merchandise on Account Business Transaction On December 14, On Your

Recording the Purchase of Merchandise on Account Business Transaction (cont'd. ) On December 14,

Recording the Purchase of Merchandise on Account When the entry is recorded: � Diagonal

Purchases Returns and Allowances Purchase return: business returns merchandise to the supplier for full

Purchases Returns and Allowances Contra cost of merchandise Reduces the balance of the related

Recording a Purchases Returns and Allowances Transactions Business Transaction On December 16, On Your

Recording a Purchase Returns and Allowances Transactions Business Transaction (cont'd. ) On December 16,

Recording a Purchase Returns and Allowances Transaction Business Transaction (cont'd. ) On December 16,

Posting to the Accounts Payable Subsidiary Ledger Refer to figure 15 -6 on page

Thinking Critically When and why would a business use an accounts payable subsidiary ledger?

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CH. 15, SEC. 2: ANALYZING AND RECORDING PURCHASES ON ACCOUNT Accounting II Ms. Alltucker

Learning Objectives What you will learn: � How the accounts payable subsidiary ledger is used � How to record the purchase of merchandise on account � How to record the purchase of other assets on account � How to record purchases returns and allowances transactions � How to post to creditor accounts in the accounts payable subsidiary ledger Why it’s important: � Purchasing is a critical, ongoing process in a merchandising business; therefore, it is essential that you learn how to record the different kinds of purchases transactions

Analyzing Purchases of Assets on Accounts Payable Subsidiary Ledger General Ledger Accounts Receivable—controlling account $4, 500 Accounts Receivable Subsidiary Ledger Individual Accounts Within Ledger: Controlling Sandals Etc. $ 900 account balance Shoe Warehouse 2, 100 Shoe Wholesale Inc. 1, 000 Store Supply Shop 500 Total equals total of accounts in subsidiary ledger. $4, 500

Recording the Purchase of Merchandise on Account Business Transaction On December 14, On Your Mark purchased $2, 300 in merchandise on account from Pro Runner Warehouse, Invoice 7894. ANALYSIS Identify 1. The accounts affected are Purchases, Accounts Payable (controlling), and Accounts Payable—Pro Runner Warehouse (subsidiary).

Recording the Purchase of Merchandise on Account Business Transaction (cont'd. ) On December 14, On Your Mark purchased $2, 300 in merchandise on account from Pro Runner Warehouse, Invoice 7894. ANALYSIS Classify 2. Purchases is a cost of merchandise account. Accounts Payable (controlling) and Accounts Payable—Pro Runner Warehouse (subsidiary) are liability accounts.

Recording the Purchase of Merchandise on Account Business Transaction (cont'd. ) On December 14, On Your Mark purchased $2, 300 in merchandise on account from Pro Runner Warehouse, Invoice 7894. ANALYSIS + / – 3. Purchases is increased by $2, 300. This is the cost of merchandise purchased. Accounts Payable (controlling) and Accounts Payable—Pro Runner Warehouse (subsidiary) are increased by $2, 300.

Recording the Purchase of Merchandise on Account Business Transaction (cont'd. ) On December 14, On Your Mark purchased $2, 300 in merchandise on account from Pro Runner Warehouse, Invoice 7894. DEBIT-CREDIT RULE 4. Increases to cost of merchandise accounts are recorded as debits. Debit Purchases for $2, 300. 5. Increases to liability accounts are recorded as credits. Credit Accounts Payable (controlling) for $2, 300. Also credit Accounts Payable—Pro Runner Warehouse (subsidiary) for $2, 300.

Recording the Purchase of Merchandise on Account Business Transaction (cont'd. ) On December 14, On Your Mark purchased $2, 300 in merchandise on account from Pro Runner Warehouse, Invoice 7894. T ACCOUNTS 6. Debit + 2, 300 Accounts Purchases Payable Credit – Debit – Credit + 2, 300 Accounts Receivable Subsidiary Ledger Pro Runner Warehouse Debit Credit – + 2, 300

Recording the Purchase of Merchandise on Account When the entry is recorded: � Diagonal line is entered in the Posting Reference column to indicate that the credit amount is posted in two places 1 st—Accounts Payable controlling account in the general ledger 2 nd—post to accounts payable subsidiary ledger

Purchases Returns and Allowances Purchase return: business returns merchandise to the supplier for full credit Purchase allowance: occurs when a business keeps less than satisfactory merchandise and pay a reduced price Debit Memorandum: used to notify suppliers of a return or to request an allowance � Always results in a decrease to Accounts Payable controlling account and subsidiary ledger

Purchases Returns and Allowances Contra cost of merchandise Reduces the balance of the related account, purchases Purchases Returns and Allowances Debit – Decrease Side Credit + Increase Side Normal Balance

Recording a Purchases Returns and Allowances Transactions Business Transaction On December 16, On Your Mark issued Debit Memorandum 51 for the return of $200 in merchandise purchased on account from Fast. Lane Athletics. ANALYSIS Identify 1. The accounts affected are Accounts Payable (controlling), Accounts Payable— Fast. Lane Athletics (subsidiary), and Purchases Returns and Allowances.

Recording a Purchase Returns and Allowances Transactions Business Transaction (cont'd. ) On December 16, On Your Mark issued Debit Memorandum 51 for the return of $200 in merchandise purchased on account from Fast. Lane Athletics. ANALYSIS Classify 2. Accounts Payable (controlling) and Accounts Payable— Fast. Lane Athletics (subsidiary) are liability accounts. Purchases Returns and Allowances is a contra cost of merchandising account.

Recording a Purchase Returns and Allowances Transaction Business Transaction (cont'd. ) On December 16, On Your Mark issued Debit Memorandum 51 for the return of $200 in merchandise purchased on account from Fast. Lane Athletics. ANALYSIS + / – 3. Accounts Payable (controlling) and Accounts Payable— Fas. Lane Athletics (subsidiary) are decreased by $200. Purchases Returns and Allowances is increased by $200.

Recording a Purchase Returns and Allowances Transaction Business Transaction (cont'd. ) On December 16, On Your Mark issued Debit Memorandum 51 for the return of $200 in merchandise purchased on account from Fast. Lane Athletics. DEBIT-CREDIT RULE 4. Decreases to liability accounts are recorded as debits. Debit Accounts Payable (controlling) for $200. Also debit Accounts Payable—Fast. Lane Athletics (subsidiary) for $200. 5. Increases to contra cost of merchandise accounts are recorded as credits. Credit Purchases Returns and Allowances for $200.

Recording a Purchase Returns and Allowances Transaction Business Transaction (cont'd. ) On December 16, On Your Mark issued Debit Memorandum 51 for the return of $200 in merchandise purchased on account from Fast. Lane Athletics. T ACCOUNTS 6. Accounts Payable Debit – 200 Purchases Returns and Allowances Credit + Debit – Accounts Receivable Subsidiary Ledger Fast. Lane Athletics Debit – 200 Credit + 200

Posting to the Accounts Payable Subsidiary Ledger Refer to figure 15 -6 on page 399 in your textbook Don’t forget about the diagonal line in the general journal and posting the check mark and the post reference in the general journal

Thinking Critically When and why would a business use an accounts payable subsidiary ledger? When merchandise purchased by a business is unacceptable, what can the business do to recover the cost of merchandise?