Purchases and Purchases Journal

Chapter 6
Purchases and Purchases

Journal
Purchase
Purchase Accounts
Accounts
Asset = Liability + O’E + Revenue - Expense
Merchandize
Sales tax payable purchase
Inventory Sales
- + + -
+ -
- +
Sales R&A Purchase R&A
+ - - +
Purchase
Purchase procedures
procedures and
and control
control
Department
Purchase
requisition Purchase Payment
order
Purchase Dept Supplier Accounting
Dept
Delivery
Invoice
Receiving Dept record
Receiving
report
verification
Purchases
Purchases Journal
Journal
• Record the purchases of merchandise on
account only.
• What is the difference between the sales
journal and purchases journal?
• What is the similarity?
Exh.
Cash Discount/Purchases 6-7
Discount/Sales Discount
A
A deduction
deduction from
from the
the invoice
invoice price
price granted
granted to
to
induce
induce early
early payment
payment of of the
the amount
amount due.
due.
Terms
Discount Period Credit Period
Time
Full amount Full amount due
Due less discount
Purchase or Sale
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”
Credit
Credit Terms
Terms and
and Cash
Cash
Discount
Discount
2/10, n/30
Percentage # of Days Otherwise, # of Days
of Discount Discount Is the Full when Full
Available Amount Is Amount Is
Due Due
Trade Discount
Used by manufacturers and wholesalers to
change selling prices without republishing their
catalogs.
Example
Example
Jen
Jen Co,
Co, Inc.
Inc. offers
offers aa 30%
30% trade
trade
discount
discount onon orders
orders ofof 1,000
1,000
units
units or
or more
more of of their
their popular
popular
product
product Racer.
Racer. Each
Each
Racer
Racer has
has aa list
list price
price ofof $5.25.
$5.25.
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.
Invoice Price
Purchases are
recorded at their
gross amounts.
Gross Purchases
Method discounts taken
are recorded
when payment is
总价法 made inside the
discount period.
Recording
Recording Purchases
Purchases atat Gross
Gross
Invoice
Invoice Price
Price
Recording
Recording Purchases
Gross
Invoice
Invoice Price
Price
On July 15, Play Clothes pays the amount
due to Kid’s Clothes.
Recording
Recording Purchases
Gross
Invoice
Invoice Price
Price
On July 15, Play Clothes pays the amount
Reduces
ReducesPurchase
Purchase $4,000  98%
$4,000 98% == $3,920
$3,920
Purchase Discounts
After
After we
we post
post these
these entries,
entries, the
the accounts
accounts
involved
involved look
look like
like this:
this:
Purchase Accounts Payable
7/6 4,000 7/15 4,000 7/6 4,000
Bal. 4,000 Bal. 0
Purchase Discounts Cash
7/15 80 XXXX 7/15 3920

Invoice Price
Now, assume that Play Clothes waited until
July 20 to pay the full amount due to Kid’s
Clothes.
Invoice Price
July 20 to pay the full amount due to Kid’s
Clothes.
Credit Terms and Cash
Discounts
Purchases are
recorded at their
net amounts.
Net (price) Purchase
Method discounts （购货
折扣） lost are
recorded when
payment is
净价法 made outside
the discount
period. Slide 6-17
Discounts
Slide 6-18
Discounts
$4,000
$4,000 ** 98%
98% == $3,920
$3,920 Slide 6-19
Discounts
On July 15, Play Clothes pays the net amount
Slide 6-20
Discounts
On July 15, Play Clothes pays the net amount
Slide 6-21
Discounts
July 20 to pay the amount due in full to
Kid’s Clothes.
Slide 6-22
Discounts
July 20 to pay the amount due in full to
Kid’s Clothes.
Nonoperating
NonoperatingExpense
Expense
Slide 6-23
Managing Discounts
IfIf we
we fail
fail to
to take
take aa 2/10,
2/10, n/30
n/30
discount,
discount, is is itit really
really expensive?
expensive?
365 days ÷ 20 days × 2% = 36.5% annual rate
Days
Days Number
Number Percent
Percent
in
in aa of
of additional
additional paid
paid to
to
year
year days
days before
before keep
keep
payment
payment money
money
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
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)
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.
Allowances
After
After we
we post
post these
these entries,
entries, the
the accounts
accounts
involved
involved look
look like
like this:
this:
Purchases
Accounts Payable
3/27 48,000
3/30 5000 3/27 48,000
Bal. 48,000
Bal. 43 ， 000
Allowances
3/28 5000
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)
Revenue expense
- + -
++
Sales Purchase
- + + -
Sales R&A Purchase R&A
+ - +
-
Sales Discount Purchase Discount
+ - - +
Periodic Inventory System
The inventory on
hand and the
cost of goods
sold for the year
are not
determined until
year-end.
Periodic Inventory System
We use one of these inventory valuation
methods in periodic inventory system.
Specific Average
identification cost
FIFO LIFO
First-In, First-Out Method (FIFO)
先进先出法
Oldest
Oldest Cost
Cost of
of
Costs
Costs Goods
Goods Sold
Sold
Recent
Recent Ending
Ending
Costs
Costs Inventory
Inventory
Last-In, First-Out Method (LIFO)
后进先出法
Recent
Recent Cost
Cost of
of
Costs
Costs Goods
Goods Sold
Sold
Oldest
Oldest Ending
Ending
Costs
Costs Inventory
Inventory
Specific Identification
具体辨认法
When a unit
is sold, the
specific cost of
the unit sold is
added to cost
of goods sold.
Not really. Specific
Since specific identification is hard to use
identification is so when we sell a lot of
easy, can’t we use it inventory that has lots of
all the time? different costs.
Average-Cost Method
平均成本法
When a unit is sold,
the average cost of each unit
in inventory is assigned to
cost
of goods sold.
Cost of Goods Units on hand

Available for ÷ on the date of
Sale sale
Inventory Valuation Methods: A Summary
Costs Allocated to:
Valuation Cost of Goods
Method Sold Inventory Comments
Specific Actual cost of Actual cost of units Parallels physical flow
identification the units sold remaining Logical method when units
are unique
May be misleading for
identical units
Average cost Number of units Number of units on Assigns all units the same
sold times the hand times the average unit cost
average unit cost average unit cost Current costs are averaged
in with older costs
First-in, First-out Cost of earliest Cost of most Cost of goods sold is based
(FIFO) purchases on recently on older costs
hand prior to the purchased units Inventory valued at current
sale costs
May overstate income during
periods of rising prices; may
increase income taxes due
Last-in, First-out Cost of most Cost of earliest Cost of goods sold shown at
(LIFO) recently purchases recent prices
purchased units (assumed still in Inventory shown at old (and
inventory) perhaps out of date) costs
Most conservative method
during periods of rising
prices; often results in lower
income taxes

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Chapter 6

Purchases and Purchases

Sales R&A Purchase R&A

Cash Discount/Purchases 6-7

Purchase Discounts Cash

7/15 80 XXXX 7/15 3920

365 days ÷ 20 days × 2% = 36.5% annual rate

Sales R&A Purchase R&A

Cost of Goods Units on hand

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