Chapter 10
Journalizing Purchases and Cash Payments
Using Special Journals
Partnerships
• Encore Music, the business described
in Cycle 1, is a small business owned
by one person
• Proprietorship
• A business in which two or more
persons combine their assets and skills
is called a partnership
• As in proprietorships, reports and
financial records of the business are
kept separate from personal records
10-1
Journalizing
Purchases Using a
Purchases Journal
The Business Omni
Import
• A business that purchases and sells
goods is called a merchandising
business
• A merchandising business that sells to
those who use or consume the goods is
called a retail merchandising business
• Differs from a service business by
actually selling merchandise, a tangible
product
Using Special
Journals
• A business with a limited number of
daily transactions may record all entries
in one journal
• A business with many daily transactions
may choose to use a separate journal
for each kind of transaction
• A journal used to record only one kind
of transaction is called a special journal
Using Special
Journals
• Omni Imports uses five journals to
record daily transactions:
• Purchases journal:
For all purchases
of merchandise on account
• Cash payments journal:
payments
For all cash
Using Special
Journals
• Sales Journal:
For all sales of
merchandise on account
• Cash Receipts Journal:
For all cash
receipts
• General Journal:
transactions
For all other
Purchasing
Merchandise
• The price a business pays for goods it
purchases to sell is called cost of
merchandise
• The selling price of merchandise must
be greater than the cost of the
merchandise for the business to make a
profit
Purchasing
Merchandise
• The amount added to the cost of
merchandise to establish the selling
price is called markup
• Revenue earned from the sale of
merchandise includes both the cost and
markup
• Only the markup increases capital
Purchasing
Merchandise
• Accounts for the cost of merchandise
are kept in a separate division of the
general ledger
• The cost of merchandise division is
shown on p. 219
Purchasing
Merchandise
• A business from which merchandise is
purchased or supplies or other assets
are bought is called a vendor
• The account used for recording the cost
of merchandise is titled Purchases
Purchasing
Merchandise
• Purchases is classified as a cost
account because it is in the cost of
merchandise division in the chart of
accounts
• Because the cost of merchandise
reduces capital when merchandise is
purchased, it has a normal debit
balance
Purchases on
Account
• The cost account, Purchases, is used
only to record the cost of merchandise
purchased
• Supplies, other items are not
recorded here
• A transaction at which the merchandise
purchased is to be paid at a later date is
known as a purchase on account
Purchases on
Account
• Most businesses will keep separate
ledgers for each vendor
• The total amount owed to all vendors
can be summarized in a single general
ledger account
Purchases on
Account
• A liability account that summarizes all
amounts owed to vendors is Accounts
Payable
• The liability account,
Accounts
Payable, has a normal credit balance
Purchases Journal
•
Omni uses a special journal to record only
purchases of merchandise on account
•
•
•
Purchases journal records on only one line
Amount column has two headings
•
•
Purchases Journal
p. 224
All purchases on account involve a debit to
Purchases and a credit to Accounts Payable
Purchase Invoice
• When a vendor sells merchandise to a
buyer, the vendor prepares a form
showing what has been sold
• Purchase Invoice
• This invoice lists the quantity, the
description, price of each item and total
amount of invoice
Purchasing Merchandise
on Account
• p. 226
• Purchased merchandise on account
from Crown Ltd., $2039.00. Purchase
Invoice No. 83.
Totaling and Ruling a
Purchases Journal
• Omni always rules its purchases journal
at the end of each month, even if the
page for the month is not full
Totaling and Ruling a
Purchases Journal
•
Steps
•
•
•
•
•
•
Rule a single line across the amount column
under the last entry
Write the date in date column
Write “Total” in account credited column
Add the amount column / verify
Write the total below the single line
Rule double lines under the total
10-2
Journalizing Cash
Payments Using a
Cash Payments
Journal
Cash Payments
Journal
• A special journal used to record only
cash payment transactions is called a
cash payments journal
• Amount columns
• Cash
• Accounts Payable
• General (used for amounts that don’t
occur frequently)
Cash Payments
Journal
• Source document is usually check
issued
• For payments not using a check, source
document is memorandum
Purchasing Merchandise
for Cash
• p. 230
• Purchased merchandise for cash,
$575. Check No. 290.
Buying Supplies for Cash
• p. 230
• Paid cash for office supplies, $34.00
Check
No 292
• Supplies are not recorded in purchases
account b/c they aren’t intended for sale
• Increases office supplies account balance,
decreases cash account balance
• Same steps as journalizing purchasing merch
for cash
Cash Payment on
Account
• p. 231
• Paid cash on account to Pacific
Imports, $1050.00, covering Purchase
Invoice No. 81. Check No 294.
Cash Payment of an
Expense
• p. 232
• Paid cash for advertising, 150.00.
Check No 296.
10-3
Performing Additional
Cash Payments
Journal Operations
Cash Payment to
Replenish Petty Cash
• p. 234
• Paid cash to replenish the petty cash
fund, $205: office supplies, $35; store
supplies, $47; advertising, $92;
miscellaneous, $31. Check No 297.
Cash Withdrawals by
Partners
• Assets taken out of a business for the
personal use of an owner are known as
withdrawals
• Cash and Merchandise generally taken
out of a merchandising business
• Withdrawals reduce the amount of a
business’s capital
Cash Withdrawals by
Partners
• Since capital accounts have credit
balances, partners’ drawing accounts
have normal debit balances
• p. 235
• Michelle Wu, partner, withdrew cash
for personal use, $1200. Check No
298.
Totaling, Proving, and Ruling a Cash
Payments Journal to Carry Totals
Forward
• A journal is proved and ruled whenever
a journal page is filled and always at the
end of a month
• Total debits must equal total credits
• After a journal is proved, the journal is
ruled in preparation for forwarding to
the next page
• Example p. 236
Starting a New Cash
Payments Journal Page
• The totals from the previous journal
page are carried forward to the next
journal page
• The total are recorded on the first line of
the new page
• p. 237 example
Totaling, Proving and Ruling a Cash
Payments Journal at the End of a
Month
• Equality of debits and credits in a
journal is proved at the end of each
month
• Example p. 238
10-4
Journalizing Other Transactions Using
a General Journal
General Journal
• Not all transactions can be recorded in
special journals
• Transactions that can’t be are recorded
in a general journal
• If a transaction is not recorded in the
purchases journal, cash payments
journal, sales journal or cash receipts
journal - it will be recorded in the
general journal
Buying Supplies on
Account
• p. 241 Example
• Bought store supplies on account
from Foxfire Supply $210
Memorandum No 52
• General Journal
Merchandise
Withdrawals by Partners
• p. 242 Example
• Karl Koehn, partner, withdrew
merchandise for personal use, $300.
Memorandum No 53
• General Journal