Chapter 9-Purchases & Cash Payments
Merchandising Businesses
 This is a business that buys goods and then resells them
 Service and merchandising businesses use many of the same accounts
 Merchandising businesses have additional accounts on their financial records for the
purchase and sale of merchandise
Forming a Corporation
 Some businesses need larger amounts of capital that cannot be as easily acquired as a
proprietorship
 Corporation: an organization with the legal rights of a person, which many persons or
other corporations own
 Share of Stock: each unit of ownership in a corporation
 Stockholder: the owner of one or more shares of stock
Subsidiary Ledgers & Controlling Accounts




Vendor: a business from which merchandise, supplies or other assets are purchased
Subsidiary Ledger: a ledger that summarizes a single general ledger account
Accounts Payable Ledger: contains all the vendor accounts
The check to make sure that your accounts payable ledger is correct is if all the account
balances added together equal the balance you have in the Accounts Payable Account
 Do working together 9-1, page 248
Accounting for Purchasing of Merchandise
 We are now going to be using special journals for recording our transactions
 There are 5 journals we will be using:
o Purchases Journal
o Cash Payments Journal
o Sales Journal
o Cash Receipts Journal
o General Journal
 We will focus on Purchases and Cash Payments Journals for this chapter
 The Purchases Journal will be used to record all transactions where items are purchased
 It will only record purchases made, nothing else!!!
 The special amount column in the Purchases Journal puts the amount to 2 different
places; Purchases & Accounts Payable
 Terms of Sale: an agreement between buyer and seller about payment for merchandise
 Terms of Sale are often abbreviated like this, n/30, meaning that the net (total bill) is
due within 30 days of the date printed on the statement
 Look at the transaction example on page 253
 Do working together 9-2, page 254
Posting for Purchases Journal
 Posting for all the special journals is done the same as the posting we have done in the
past
 When you post the totals for the Purchases Journal you have to make sure you post the
total in 2 places; Debit to Purchases & Credit to Accounts Payable
 Under the total for the Purchases Journal you will put two account numbers; the one
for Purchases (5110) and one for Accounts Payable (2110)
 Do working together 9-3, page 259
Accounting for Cash Payments
Cash Payments Journal
 Used to record only cash payment transactions
 Trade Discount
o Catalogs and Internet sites are set-up to describe the products sold
o The list price is the price printed in the catalog or listed on the Internet site and
the price you would pay
o Often manufacturers will grant a discount to someone buying in bulk
o This discount is given so that they don’t have to print two catalogs or maintain
two websites
o A trade discount will be written as a percentage such as; 30% , 40% etc.
o With a trade discount the invoice will only show the discounted price and not
the original listed price
 Cash Discount
o This is a discount given to encourage prompt payment by a customer
o So the terms of sale written to a customer receiving a cash discount may look
something like this:
 2/10, n/30 (meaning a 2% discount will be given if the bill is
paid in full within the first 10 days, if not the net of the bill is due
in 30 days)
o Recording of this discount is done in the cash payments journal, using the
accounts payable debit column, purchases discount credit column, and cash
credit column
o Look at example on page 263
o Look at the other examples for transactions on pages 261, 262, 264 and 265
o Do working together 9-4, page 266
 Posting for Cash Payments Journal
o Posting for cash payments journal is done the same as all the other posting we
have done
o Once you have all your posting done you will complete a Schedule of Accounts
Payable
o The schedule lets you know all your posting to accounts payable ledger were
correct.
o Remember if the total of your Schedule of Accounts Payable = the total amount
in your Accounts Payable account in your general ledger
 Do working together 9-5, page 273
 Do application problems 9-1, 9-2, 9-3, 9-4, 9-5 & 9M
 Once done with application problems test over chapter 9