CHAPTER 19Recording Purchases and Cash Payments Using Special Journals

CORPORATIONS

Corporations… Are organizations with the legal rights of a

person May be owned by many persons

Formed by receiving approval from a state or federal agency

May also sell unit of ownership called a share of stock

Special Journals A special journal is a journal used to

record only one kind of transaction.

Allow the work of journalizing to be divided among several accounting clerks.

Clerks specialize in kind of transaction recorded – helps to improve efficiency of recording transactions

4 Kinds of Special Journals

1. Purchases Journal2. Cash Payments Journal3. Sales Journal4. Cash Receipts Journal

*A general journal is used for all other transactions.

Purchases Journal

Used for all purchases on account. Used only to record purchases on account. One column: Account Credited One entry represents the Purchases Debit

AND the Accounts Payable Credit

Source Document = purchases invoice

Example

May 1: Purchased merchandise on account from Cell Systems, $6,667. P39

Write the date Write the vendor name (Cell Systems) in

the “Account Credited” column Write the invoice number (39) in the

“Purchases No.” column

Posting from a Purchases Journal to Accounts Payable Ledger

1. Write the date2. Write the abbreviation & page number

of the journal (P3) is written in the Post. Ref. column of the account.

3. Record the amount in the Credit column4. Calculate new Credit balance5. Go back to purchases journal and write

vendor number in the Post.Ref. column

Posting from a Purchases Journal to General Ledger

1. At the end of each month, a purchases journal is totaled and ruled.

2. Single rule and add the amount column.3. Post the total amount of the purchases

journal to 2 general ledger accounts:• Purchases as a debit• Accounts Payable as a credit

Cash Payments Journal

Used for all cash payments transactions.

Used only to record payments of cash. Most cash payments are for…

Expenses Cash purchases Payments to Vendors

Example

May 2: Paid cash for rent. C148

Write the date Debit Rent Expense Credit Cash

Illustration 19-7 textbook page 478

Trade Discounts

A trade discount is a reduction in the list price granted to customers.

The list price is the amount printed or a catalog price.

Example: textbook page 479

Cash Discounts

A cash discount is given to encourage prompt payment. Usually stated as a percentage that can be

deducted from the invoice amount. Ex: 2/10 (Means 2% of the invoice amount

may be deducted if the invoice is paid within 10 days of the invoice date.

Ex: n/30 (Means that invoice amount must be paid in 30 days)

Purchases Discounts

A purchase discount is a cash discount on purchases taken by the customer.

When the purchases discount is taken, the customer pays less cash than the invoice amount previously recorded

Therefore, purchases discounts are deducted from purchases.

Purchases Discounts

Purchases discounts are recorded in a general ledger account titled Purchases Discount.

It is a contra account because it reduces Purchases.

Purchases Discounts

Example: Paid cash on account to Cell Systems, $6,538.56, covering Purchases Invoice No.39 for $6,672, less 2% discount, $133.44. Check no.168.

$6,672 (Purchase Invoice Amount) x 2% = $133.44 (Purchases Discount)

$6,672 (Purchase Invoice Amount) - $ 133.44 (Purchases Discount) = $6,538.56 (Cash Amount after Discount )

Purchases Discounts

Example continued... GENERAL LEDGER Debit Accounts Payable: $6,672 Credit Cash: $6,538.56 Credit Purchases Discount: $133.44

ACCOUNTS PAYABLE LEDGER Debit Cell Systems: $6,672

Cash Payments/Trade Discounts

Ex: Celluphone wishes to buy 80 cell phones carrying cases for cash. The price quoted was $10 list price/case less 40% trade discount.

Here’s how to calculate the total invoice amount:1. $10 (list price) x 40% (trade discount rate) = $4 (trade

discount)

2. $10 (list price) - $4 (discount) = $6 (invoice amount/case)

3. $6 (invoice amount/case) x 80 cases = $480 (total invoice amount)

Cash Payments on Account without discounts

Example: Paid cash on account to Electro Sound, $1,740, covering Purchase Invoice No.21. Check No. 150.

GENERAL LEDGER Debit Accounts Payable: $1,740 Credit Cash: $1,740

ACCOUNTS PAYABLE LEDGER Debit Electro Sound: $1,740

Replenish Petty Cash Fund

Need to determine if petty cash is correct.

Compare 2 things... The amount that should be on hand Amount that is in the petty cash box

Cash can equal, it can be short, or it can be over.

Cash Short & Over Account

Cash Short: petty cash on had amount that is LESS than a recorded amount.

Cash Over: petty cash on had amount that is MORE than a recorded amount.

This is a temporary account. Used to record shortages and overages.

Cash Short & Over Account

May be an expense or a revenue account.

Cash Short = an expense: DEBIT Cash Over = revenue: CREDIT

Petty Cash Short

Example: Paid cash to replenish the petty cash fund, $233.45: supplies, $87.80, advertising $43.75, miscellaneous, $97.90; cash short, $4. C209

Debit Supplies: $87.80 Debit Advertising Expense: $43.75 Debit Miscellaneous Expense: $97.90 Debit Cash Short and Over: $4 Credit Cash: $233.45

Petty Cash Over

Example: Paid cash to replenish the petty cash fund, $283.80: supplies, $107.45, advertising $57, miscellaneous, $121.90; cash over, $2.55. C267

Debit Supplies: $107.45 Debit Advertising Expense: $57 Debit Miscellaneous Expense: $121.90 Debit Cash Short and Over: $2.55 Credit Cash: $283.80

General Journal A general journal is a journal where all

kinds of transactions can be recorded.

Only has 2 amount columns General Debit General Credit

Purchases Returns & Allowances

A purchases return is credit allowed for the purchase price of returned merchandise.

When merchandise is damaged but still usable or of different quality than that ordered, the vendor may let the customer keep the merchandise at a reduced price.

Purchases Returns & Allowances

A purchases allowance is credit allowed for part of the purchase price of merchandise that is not returned.

Results in a decrease in the customer’s accounts payable.

Decreases Purchases

Purchases Returns & Allowances

Example: Returned merchandise to Interstate Com, $375, covering P30. DM 18.

GENERAL LEDGER Debit Accounts Payable: $375 Credit Purchases Returns and Allowance:

$375 ACCOUNTS PAYABLE LEDGER Debit Interstate Com: $375