Chapter 9 Review
Terms
 capital stock: total shares of ownership in a corporation
 cash discount: a deduction that a vendor allows on the
invoice amount to encourage prompt payment
 corporation: an organization with the legal rights of a
person and which many persons may own
 debit memo: a form prepared by the customer showing
the price deduction taken by the customer for returns &
allowances
 purchase invoice: an invoice used as a source document
for recording a purchase on account transaction
Terms Cont.
 purchases discount: a cash discount on purchases taken




by a customer
purchases return: credit for the purchase price of
returned merchandise, giving a decrease in the
customer’s accounts payable
retail merchandising business: a merchandising business
that sells to those who use or consume the goods
share of stock: each unit of ownership in a corporation
special journal: a journal used to record only one kind of
transaction
Special Journal
 A journal used to record only one kind of transaction
 When several journals are used, an abbreviation is
used in the Post Ref. column of a ledger to show the
journal from which the posting was made. (just like
the general journal (G12), special journals use (P7 &
CP78))
 Source documents for special journals

Cash payments is a check (C), Purchases is a purchase invoice
(P), General is a memo (CM, DM, or M)
Purchases
 Classified as a cost account
 Shows merchandise purchased by retail merchandise
business to be resold

Increased with a debit, decreased with a credit (Or the same as
an asset)
 Purchases invoice
 An invoice used as a source document for purchases made on
account
Purchases Discount
 A cash discount taken on purchases taken by a
customer (increased with a credit transaction)
 Trade discounts are not journalized in the purchases
discount credit column

A business needs to pay the actual amount of purchase made
on account not the list price

Merchandise with a list price of $1,000 is purchased for $700,
then the business needs to pay $700.
 Purchases are recorded at their cost including any
shipping cost and taxes (historical cost accounting
concept)
Purchase Returns & Allowances
 Credit allowed for the purchase price of returned
merchandise resulting in a decrease in accounts
payable

Decreases the amount of purchases
 Contra account of purchases (not cost of
merchandise)


Offsets the related account purchases
Normal balances are opposite their related accounts (Increase
with a credit, Decrease with a debit)
 Debit memorandum
 A form prepared by the customer showing the price deduction
taken by the customer for returns & allowances
Other Concepts
 Petty cash (Cash short and over)

If actual cash is more than recorded cash, cash is over (credit cash
short and over)
 If actual cash is less than recorded cash, cash is short
(debit cash short and over)
 2/10 Net 30


2% discount if paid within 10 days, if not due within 30 days
If merchandise is purchased for $2,000 on October 1, with the terms
2/10 net 30, the amount due to the vendor on October 9th is $1,960.

$2,000 x .02 = $40
$2,000-40= $1,960
 Supplies bought for use in the business

Recorded in the supplies account