The Purchasing Process Section 15 1 Purchasing Items

The Purchasing Process Section 15. 1 Purchasing Items Needed by a Business Requesting needed items The purchase of supplies, equipment, and merchandise is divided into four stages: Ordering from a supplier Verifying items received Processing the supplier’s invoice Glencoe Accounting Copyright © by The Mc. Graw-Hill Companies, Inc. All rights reserved.

The Purchasing Process Section 15. 1 Purchasing Items Needed by a Business Purchase Requisition See page 420 purchase requisition A written request that a specified item or items be ordered. Glencoe Accounting Copyright © by The Mc. Graw-Hill Companies, Inc. All rights reserved.

The Purchasing Process Section 15. 1 Purchasing Items Needed by a Business Contents of the Purchase Order Include: Quantity Description Unit price Total cost purchase order A written offer to a supplier to buy specified items. Supplier’s name and address Date needed Shipping method (optional) Glencoe Accounting Copyright © by The Mc. Graw-Hill Companies, Inc. All rights reserved.

The Purchasing Process Section 15. 1 Purchasing Items Needed by a Business Verifying Items Received The buyer unpacks and checks the contents against the packing slip. When a shipment arrives: The buyer reports discrepancies to the accounting department. packing slip A form that lists the items included in the shipment. Glencoe Accounting Copyright © by The Mc. Graw-Hill Companies, Inc. All rights reserved.

The Purchasing Process Section 15. 1 Purchasing Items Needed by a Business Processing the Supplier’s Invoice The supplier sends an invoice, or bill, to the buyer. The accounting department checks the invoice against the packing slip and purchase order. If there are no discrepancies, a processing stamp is placed on the invoice. processing stamp A stamp placed on a creditor’s invoice that outlines the steps to be followed in processing the invoice for payment. Glencoe Accounting Copyright © by The Mc. Graw-Hill Companies, Inc. All rights reserved.

The Purchasing Process Section 15. 1 Purchasing Items Needed by a Business Processing the Supplier’s Invoice See page 422 Glencoe Accounting Copyright © by The Mc. Graw-Hill Companies, Inc. All rights reserved.

The Purchases Account Section 15. 1 Purchasing Items Needed by a Business Merchandise bought to sell to customers is recorded in the Purchases account, a temporary account that is classified as a cost of merchandise account. Purchases account The account used to record the cost of merchandise purchased during a period. cost of merchandise The actual cost to the business of the merchandise sold to customers. Glencoe Accounting Copyright © by The Mc. Graw-Hill Companies, Inc. All rights reserved.

Purchases of Assets on Account Section 15. 2 Analyzing and Recording Purchases on Account The most important thing a retail business purchases is merchandise to resell. Merchandise can be bought on a cash basis or on account. Glencoe Accounting Copyright © by The Mc. Graw-Hill Companies, Inc. All rights reserved.

Purchases of Assets on Account Section 15. 2 Analyzing and Recording Purchases on Account The Accounts Payable Subsidiary Ledger Form See page 424 accounts payable subsidiary ledger A separate ledger that contains accounts for all creditors; it is summarized in the Accounts Payable controlling account in the general ledger. Glencoe Accounting Copyright © by The Mc. Graw-Hill Companies, Inc. All rights reserved.

Purchases of Assets on Account Section 15. 2 Analyzing and Recording Purchases on Account After an invoice is journalized, it is put in a tickler file according to its due date. tickler file A file that contains a folder for each day of the month into which invoices are placed according to their due dates. due date The date by which an invoice must be paid. Glencoe Accounting Copyright © by The Mc. Graw-Hill Companies, Inc. All rights reserved.

Purchases of Assets on Account Section 15. 2 Analyzing and Recording Purchases on Account Business Transaction On December 14 The Starting Line purchased $2, 300 in merchandise on account from Pro Runner Warehouse, Invoice 7894. See pages 425– 426 Glencoe Accounting Copyright © by The Mc. Graw-Hill Companies, Inc. All rights reserved.

Purchases of Assets on Account Section 15. 2 Analyzing and Recording Purchases on Account Business Transaction On December 15 The Starting Line received Invoice 3417, dated December 13, from Champion Store Supply for store equipment bought on account for $1, 200, terms n/30. See pages 426– 427 Glencoe Accounting Copyright © by The Mc. Graw-Hill Companies, Inc. All rights reserved.

Purchases Returns and Allowances Section 15. 2 Analyzing and Recording Purchases on Account Purchases Return Occasionally, a business buys merchandise that, upon inspection, is unacceptable. Glencoe Accounting Purchases Allowance Debit Memorandum Copyright © by The Mc. Graw-Hill Companies, Inc. All rights reserved.

Purchases Returns and Allowances Section 15. 2 Analyzing and Recording Purchases on Account See page 427 Glencoe Accounting Copyright © by The Mc. Graw-Hill Companies, Inc. All rights reserved.

Purchases Returns and Allowances Section 15. 2 Analyzing and Recording Purchases on Account Business Transaction On December 16 The Starting Line issued Debit Memorandum 51 for the return of $200 in merchandise purchased on account from Fast. Lane Athletics. See page 428 Glencoe Accounting Copyright © by The Mc. Graw-Hill Companies, Inc. All rights reserved.

Purchases Returns and Allowances Section 15. 2 Analyzing and Recording Purchases on Account Posting to General Ledger Accounts Payable Subsidiary Ledger See page 429 Glencoe Accounting Copyright © by The Mc. Graw-Hill Companies, Inc. All rights reserved.

Controls over Cash Section 15. 3 Analyzing and Recording Cash Payments How Businesses Can Manage Cash Payments Require proper authorization of all cash payments. Write checks for all payments. Use prenumbered checks. Retain and account for voided checks. Glencoe Accounting Copyright © by The Mc. Graw-Hill Companies, Inc. All rights reserved.

Cash Payment Transactions Section 15. 3 Analyzing and Recording Cash Payments Business Transaction On December 19 The Starting Line purchased merchandise from Fast. Lane Athletics for $1, 300, Check 1002. See page 433 Glencoe Accounting Copyright © by The Mc. Graw-Hill Companies, Inc. All rights reserved.

Cash Payment Transactions Section 15. 3 Analyzing and Recording Cash Payments FOB destination Shipping terms are stated as FOB shipping point FOB destination Shipping term specifying that the supplier pays the shipping cost to the buyer’s destination. Glencoe Accounting FOB shipping point Shipping term specifying that the buyer pays the shipping charge from the supplier’s shipping point. Copyright © by The Mc. Graw-Hill Companies, Inc. All rights reserved.

Cash Payment Transactions Section 15. 3 Analyzing and Recording Cash Payments Business Transaction On December 24, The Starting Line issued Check 1004 for $275 to Dara’s Delivery Service for shipping charges on merchandise purchased from Sports Link Footwear. See page 435 Glencoe Accounting Copyright © by The Mc. Graw-Hill Companies, Inc. All rights reserved.

Cash Payment Transactions Section 15. 3 Analyzing and Recording Cash Payments An insurance premium is paid at the beginning of the covered period and is recorded in the Prepaid Insurance asset account. premium The amount paid for insurance. Glencoe Accounting Copyright © by The Mc. Graw-Hill Companies, Inc. All rights reserved.

Cash Payment Transactions Section 15. 3 Analyzing and Recording Cash Payments Banks charge a bankcard fee for handling bankcard sales slips. Business Transaction On December 31 The Starting Line records the bankcard fee of $75, December bank statement. bankcard fee A fee charged for handling bankcard sales slips; usually based on the total amounts recorded on the sales slips processed. See page 435 Glencoe Accounting Copyright © by The Mc. Graw-Hill Companies, Inc. All rights reserved.

Question 1 From the four choices below, select the form that is related to each step in the purchasing process. a) purchase order b) packing slip c) processing stamp d) purchase requisition 1. Requesting needed items 2. Ordering from the supplier purchase requisition __________ purchase order __________ packing slip __________ processing stamp 4. Processing supplier’s invoice __________ 3. Verifying items received Glencoe Accounting Copyright © by The Mc. Graw-Hill Companies, Inc. All rights reserved.

Question 2 If you ordered merchandise from a vendor in New York City and the terms stated “FOB Chicago” and your company is in Denver, what would that mean? FOB, which means “free on board, ” can be the starting point, the destination, or any point in between. In this case, with FOB Chicago as the shipping terms, the vendor would pay all transportation and bear the liability for the goods from New York City to Chicago. In Chicago, ownership of the goods would shift from the vendor to you, the customer. At this time, you must pay all transportation and assume the liability for the goods from Chicago to Denver. Glencoe Accounting Copyright © by The Mc. Graw-Hill Companies, Inc. All rights reserved.

Question 3 Your business received an invoice dated February 5 totaling $2, 900. The vendor has offered the terms of 2/10, n/30. You pay on February 15. Calculate the following: 1. total amount of purchase 2. amount of discount 3. amount of check $2900. 00 _____ $58. 00 _____ $2842. 00 _____ Now indicate whether you would debit or credit the following accounts. Debit 4. Accounts Payable _____ Debit 5. Vendor’s subsidiary account _____ Credit 6. Purchases Discounts _____ Credit 7. Cash in Bank _____ Glencoe Accounting Copyright © by The Mc. Graw-Hill Companies, Inc. All rights reserved.

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