Ch 11 Lecture Guide

1
ACCOUNTING-I

For best online viewing, select Browse gt Full
Screen
Chapter 11
Lecture Guide
Accounting for a Partnership Journalizing
Purchases and Cash Payments
2

• Journalizing Purchases Cash Payments

WHATS NEW???

• Partnership
• more than one owner
• Merchandising Business
• sells merchandise rather than services
• Purchases
• new account used to maintain a record of
  merchandise bought for resale
• Expanded Journal
• more columns to record entries for
  additional, frequently-used accounts
• Correcting Entries
• to correct journalizing errors

3

• Journalizing Purchases Cash Payments

WHATS NEW??? (cont)

• Chart of Accounts See p 247

4-digit series 1000s instead of 100s, etc. New
division Cost of Merchandise (5000) Expenses Ch
anged to Operating Expenses and moved to 6000s
New accounts Accounts Receivable (A) Payable
(L) and related Subsidiary Ledgers Merchandise
Inventory (A) Supplies Office Store (A
E) Payroll Accounts (L E) Separate owners
accounts (OE) Credit Card Fee Expense (E)
4
RELATED CONCEPTS

• Business Entity
• Financial information is recorded and reported
  separately from the owners personal financial
  information.
• Going Concern
• Financial statements are prepared with the
  expectation that a business will remain in
  operation indefinitely.
• Historical Cost
• The actual amount paid is recorded for
  merchandise or other items bought.
• Objective Evidence
• A source document is prepared for each
  transaction.

5

• I. USING AN EXPANDED JOURNAL

A. Need for Expanded Journal Decreases the
number of transactions recorded in the General
Debit and Credit columns.
B. Form of Expanded Journal 1. 11
columns 2. Special columns are provided for
frequently-occurring transactions which affect
single accounts. 3. Contains columns related to
purchasing and selling merchandise. 4. Columns
are arranged in pairs.
See Illustration 11-1 (p 247)
6

• II. JOURNALIZING PURCHASES OF MERCHANDISE

• Cost of Merchandise price paid for goods which
  will be sold new, separate ledger division
  (5000s).
• Note Expenses are called Operating Expenses
  and are changed to 6000s.
• Markup amount added to the purchase price to
  achieve the selling price
• Note the selling price must be greater than
  the purchase price in order to make a profit.
• Revenue earned from the sale of merchandise
  includes the purchase price and the markup.
• The markup amount increases the owners capital.

7

• II. JOURNALIZING PURCHASES (cont)

• Vendor business from which merchandise,
  supplies, and other assets are bought
• Note Records of amounts owed to each vendor
  are maintained in the Accounts Payable
  Subsidiary Ledger.
• Purchases Account
• Cost of Merchandise account used ONLY to
  record goods bought for resale
• Temporary account -- reduces owners equity and
  closed at the end of each fiscal period
• Normal balance Debit
• Actual purchase price is journalized

8

• II. JOURNALIZING PURCHASES (cont)

A. Purchase of Merchandise for Cash Purchases
Debit
No account title Cash Credit
See Illustration 11-2 (p 248)
B. Purchase of Merchandise on Account 1. Source
document Purchase Invoice The date goods are
received the buyers purchase are recorded on
the invoice. Check marks are made on the
invoice to verify prices and items received, and
the verifiers initials are recorded. Terms of
sale indicate the date by which payment must be
made.
See Illustration 11-3 (p 249)
9

• II. JOURNALIZING PURCHASES (cont)

B. Purchase of Merchandise on Account
(cont) Purchases Debit
No Account Title Accounts Payable (A/P)
Credit Account Title Vendor Name
See Illustration 11-4 (p 250)
10

• III. JOURNALIZING BUYING SUPPLIES

Supplies are NOT Purchases! SUPPLIES ARE USED to
operate the business!
PURCHASES ARE SOLD! A. Buying Office Supplies
for Cash General Debit Account Title
Supplies-Office Cash Credit
See Illustration 11-5 (p 252)
B. Buying Store Supplies on Account 1. Source
document Memorandum A memorandum is attached
to the invoice to distinguish supplies from
purchases. The invoice should be verified as
usual.
See Illustration 11-6 (p 252)
11

• III. JOURNALIZING BUYING SUPPLIES (cont)

2. Buying Store Supplies on Account
(cont) General Debit Account Title
Supplies-Store Accounts Payable (A/P)
Credit Account Title Vendor Name
See Illustration 11-7 (p 253)
12
Answer Audit Your Understanding questions (p
253)
1. Why do businesses use an expanded
journal? 2. Draw T accounts for Purchases and
Accounts Payable. Label the debit, credit,
increase, and decrease sides. 3. When is a check
mark placed in the Account Title column of the
journal? 4. When is a check mark placed in the
Post. Ref. column of the journal? 5. What is the
difference between purchasing merchandise and
buying supplies?
13

• IV. JOURNALIZING CASH PAYMENTS

A. Cash Payment on Account Accounts Payable
(A/P) Debit Account Title Vendor Name Cash
Credit
See Illustration 11-8 (p 254)
B. Cash Payment of an Expense General
Debit Account Title Expense Account
Name Cash Credit
See Illustration 11-9 (p 255)
C. Cash Payment to Replenish Petty Cash General
Debit Account Titles Each account
affected Cash Credit
See Illustration 11-10 (p 256)
14

• V. JOURNALIZING OTHER TRANSACTIONS

A. Cash Withdrawals by Partners General
Debit Account Title Partner Name,
Drawing Cash Credit
See Illustration 11-8 (p 254)
B. Merchandise Withdrawals General
Debit Account Title Partner Name,
Drawing General Credit Account Title
Purchases Note There is no Purchases Credit
column
See Illustration 11-9 (p 255)
15

• V. JOURNALIZING OTHER TRANSACTIONS (cont)

C. Correcting Entry (made if the error cannot be
corrected by ruling out the original entry) A
memorandum is prepared to document the reason for
the entry.
Crediting Error General Debit Account Title
Account credited in error General Credit
Account Title Account which should have
been credited
Debiting Error General Debit Account Title
Account which should have been debited General
Credit Account Title Account debited in
error
See Illustration 11-8 (p 254)
16
Answer Audit Your Understanding questions (p
259)
1. When cash is paid on account, what is the
effect on the cash account? 2. What two assets
are normally withdrawn by the partners of a
business? 3. What is the purpose of a correcting
entry? Provide a thorough explanation
and give an example.
17
CREDITS
Based on Century 21 Accounting Ross, Hanson,
et al Southwestern Publishing Company, 1995
Restart Presentation
Esc to End