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Sale Agreement Merchandise

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Sale Agreement Merchandise document sample

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									  Accounting - Chapter 10
Journalizing Purchases and Cash Payments
 (Merchandising Business Organized as a
               Partnership)
                   CarLand
• A merchandising business organized as a
  partnership
• Partnership:
  – a business owned by two or more people
     • (Amy Kramer and Dario Mesa)
• Merchandising Business
  – one that purchases and sells goods to earn a profit
• Many transactions involve cash
  – An 11-column journal will be used
 Journalizing Purchases of Merchandise

• Cost of Merchandise Sold
  – price paid by business for goods its sells
  – selling price must be greater to make a profit
  – Markup
     • amount added to cost to get selling price
     • markup increases capital
     • cost and markup increase revenue
• Vendor
  – a business from which merchandise is purchased or supplies/assets
    bought
  Journalizing Purchases of Merchandise

• Account Title: Purchases
  –   Classification: Cost Account
  –   Temporary
  –   Records Cost of Merchandise
  –   Normal Debit Balance
       • reduces capital
       • increases by debiting, decreases by crediting
  – ONLY purchases of MERCHANDISE are recorded here
       • supplies and other assets are not merchandise
       • MERCHANDISE IS SOLD
  – Concept: Historical Cost
       • actual amount paid for merchandise is what is recorded
       Transaction - Purchased
        Merchandise for Cash

• Purchased merchandise for cash:
  –   increases purchases - debit purchases
  –   decreases cash - credit cash
  –   Two special amount columns are used
  –   a check mark goes in account title
  –   Source Document: Check stub
          Transaction: Purchased Merchandise
                       on Account
•   Many vendors - total amount owed to ALL vendors is summarized in the Accounts
    Payable account
•   Accounts Payable - a liability account with a normal credit balance
•   Invoice - form showing description of goods, quantity, price that is prepared by the
    vendor
•   Purchase Invoice - an invoice used as a source document (Objective Evidence). Our
    business stamps the date and purchase invoice number on it (P249)
•   Terms of Sale - agreement between buyer and seller about payment (number of days in
    which payment is due)
•   Purchased merchandise on account from Veloz Automotive, $1,754, P74 (page
    250)
     – Debit:      Purchases (Purchases Debit column)
     – Credit:     Veloz Automotive (Accounts Payable Credit column)
Buying Supplies for Cash or On Account

• DO NOT RECORD THE PURCHASE OF SUPPLIES IN THE
  PURCHASES COLUMN!!!
• Two classifications of supplies
   – Supplies - Office
   – Supplies - Store
• Both have a normal debit balance
• Same transactions as before
   – Debit supplies (office or store)
   – Credit cash (cash credit column) or vendor (accounts payable column)
     Cash Payment on Account

• Paid cash on account to Filtrex Tires,. $970.00, covering purchase
  invoice no. 72. C263
• This decreases the amount owed to the vendor
• Source document is a check stub
• Entry:
   – Debit: Filtrex Tires (Account Payable Debit column
   – Credit: Cash (Cash Credit column)
   – Write Filtrex Tires in Account Title column
  Cash Payment of an Expense
  and Replenishing Petty Cash
• Cash Payment of an Expense
   – Same transaction as before
   – Debit the expense
   – Credit cash
• Replenishing Petty Cash
   – Same transaction as before
   – debit expenses, supplies, etc
   – credit cash
Withdrawals by the Owners
• Cash Withdrawal
  – debit the owner’s drawing account
  – credit cash
• Merchandise Withdrawal (p257)
  – debit the owner’s drawing account
  – credit purchases
     • this credit must have purchases written in the account title
       column and the amount written in the general credit column
         Correcting Entries

• If an error is found, a memo must be prepared
• Correcting entries are like “reversing entries”
• see pages 258-259

								
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