Transcript Recording Transportation Charges on Merchandise Purchases
CHAPTER THIRTEEN
ACCOUNTING FOR PURCHASES
13-3
ACCOUNTING FOR PURCHASES
Objectives: 1. Record the entries for the purchase of merchandise for cash and on credit.
2. Record the entries for the purchase of supplies and other assets.
3. Record
purchases discounts
4. Record the entries for
freight in
.
5. Record the entries for purchases returns and
allowances.
McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved .
Recording Purchases of Merchandise
The purchase of merchandise for resale is recorded in an account called
Merchandise Purchases
. This account is usually referred to as a cost account and is a temporary account.
McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved .
13-4
Recording Purchases of Merchandise
(continued) Like the expense accounts, the Purchases account decreases owner’s equity.
13-5
McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved .
Transaction
•
$880 worth of merchandise was purchased for cash.
13-6
McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved .
Transaction Analysis
•
Merchandise purchases is debited for $880.
•
Cash is credited for $880.
Date 20 xx Mar 2 Description Merchandise Purchases Cash Purchased merchandise.
Post Ref Debit 880 Credit 880
McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved .
13-7
Transaction
•
$1150 worth of merchandise was purchased on credit.
13-8
McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved .
Transaction Analysis
Mar •
Merchandise purchases is debited for $1150.
•
Accounts payable is credited for $1150.
4 Merchandise Purchases Accounts Payable Purchased merchandise on credit from American Electric, Invoice J7632, dated 3/1/xx, terms 2/10, n/30.
1150 1150
McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved .
13-9
Recording Other Purchases
•
Be careful to record only purchases of merchandise for resale in the Merchandise Purchases account.
•
Purchases of permanent assets, such as computers, copiers, and delivery equipment should be debited to the appropriate asset account and credited to Cash or Accounts Payable.
13-10
McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved .
Recording Amounts Paid for Purchases of Merchandise on Credit
13-11
•
Accounts Payable is debited and Cash is credited.
McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved .
Transaction
•
If the business takes advantage of a 2% discount on purchases of $1150, how would the transaction be recorded?
13-12
McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved .
Transaction Analysis
•
2% of $1150 is $23.
•
Accounts payable is debited for $1150.
•
Cash is credited for $1127.
•
Purchases discount is credited for $23.
McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved .
13-13
Transaction Analysis
(continued)
Date 20 xx Mar 10 Description Post Ref Accounts Payable Cash Purchases Discount Paid American Electric for Invoice J7632 less discount.
Debit 1150 Credit 1127 23
13-14
McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved .
Recording Transportation Charges on Merchandise Purchases
13-15
•
Freight in
, another cost account, is debited for the transportation charges on all incoming merchandise purchases.
McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved .
Recording Transportation Charges on Merchandise Purchases
(continued)
13-16
•
If the purchaser pays the transportation company directly,
Freight In
is debited and Cash is credited.
McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved .
Recording Transportation Charges on Merchandise Purchases
(continued)
13-17
•
If the seller lists the transportation charges on the invoice, then the purchaser owes the seller for both the merchandise and the transportation charges, resulting in a compound entry.
McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved .
Recording Purchases Returns and Allowances
•
When a business returns goods or receives an allowance, there is a decrease in the cost of its
merchandise purchases.
•
This decrease is recorded in a cost account called
Purchases Returns and Allowances.
13-18
McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved .
Accounting Terminology
•
Freight in
•
Merchandise purchases
•
Purchases discount
•
Purchases returns and allowances
13-19
McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved .
Chapter Summary
•
Purchases of merchandise for resale are debited to a cost account called
Merchandise
Purchases.
•
Purchases of permanent assets, such as equipment, are debited to an appropriate asset account.
McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved .
13-20
Chapter Summary
(continued)
•
For a cash discount, the buyer credits the amount of the discount to a cost account called
Purchases Discount .
•
The purchaser may be required to pay transportation charges on merchandise. These charges are debited to the
Freight In
account.
McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved .
13-21
Chapter Summary
(continued)
•
The
Purchases Returns and Allowances
account is used to record the decrease in the cost of merchandise purchases that results when a business returns goods or receives allowances.
13-22
McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved .
Chapter Summary
(continued)
•
Purchases Returns and Allowances
is credited for all returns and allowances.
•
If the business is given a cash refund, the Cash account is debited.
•
If the amount is deducted from a balance that the business owes, Accounts Payable is debited.
McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved .
13-23
Topic Quiz
Answer the following true/false questions: 1. Purchases Returns and Allowances is debited for all returns and allowances.
FALSE 2. For a cash discount, the buyer credits the amount of the discount to a cost account called Purchases Discount.
TRUE 3. If the business is given a cash refund, the Cash account is credited.
McGraw-Hill/Irwin Accounting Fundamentals, 7/e
FALSE
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13-24
Investigating on the Internet
Sources of information about purchases can be accessed at various corporate websites.
As a research assignment, access a business website and report those sources of information that might concern purchases of merchandise.
McGraw-Hill/Irwin Accounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved .
13-25
1. Purchases Returns and Allowances is debited for all returns and allowances.
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FALSE
Purchases Returns and Allowances is credited for all returns and allowances.
McGraw-Hill/Irwin Accounting Fundamentals, 7/e
(Return to Topic Quiz)
© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved .
3. If the business is given a cash refund, the Cash account is credited.
FALSE
If the business is given a cash refund, the Cash account is debited.
McGraw-Hill/Irwin Accounting Fundamentals, 7/e
13-27
(Return to Topic Quiz)
© 2006 The McGraw-Hill Companies, Inc., All Rights Reserved .