Chapter 8: Accounting for Purchases and Accounts Payable

Transcription

1 Chapter 8: Accounting for Purchases and Accounts Payable Chapter Opener: Thinking Critically Students may discuss one or more of the following merchandise selection tools: consumer surveys, customer requests, or sales history reports. Fast Facts Pier 1 celebrated its 40-year history of retailing in With the mantra From Hippie to Hip, Pier 1 featured year-long special promotions and merchandise to honor the occasion. Pier 1 employs nearly 17,000 people worldwide. Net sales for the fiscal year 2004 were $1.86 billion. In 1970, Pier 1 went public and became listed on the American Stock Exchange. Accounting on the Job: Thinking Critically Answers will vary. Store managers are responsible for a wide range of operations and procedures. The extension of credit, utilizing proprietary credit cards or customer accounts, requires that managers understand common credit practices so that policies are established within generally accepted parameters. Managers should also understand how credit policies impact accounts receivable and cash flow. Accounting on the Job: Internet Application The Federated Department Stores recruitment Web site ( offers job descriptions for positions in Store Management, Merchandising, and the Executive Group. The Store Manager is responsible for all aspects of running a profitable store location. Buyers execute seasonal merchandise plans and pricing strategies. Managerial Implications: Thinking Critically Answers will vary. Students should recognize the need for checks and balances for avoiding theft and waste. Discussion Questions These questions are designed to check students understanding of the new terms, concepts, and procedures presented in the chapter. 1. Audit trail. 2. Authorization of purchase, check-in of goods, verification of invoice, proper authorization of payment, division of labor and tasks, use of prenumbered forms. 3. Documentation of credit issued. 4. Allowance made for damaged merchandise. 5. Documentation of returned merchandise. 6. List of all creditors and the balance owed by each. Prepared so that its total can be proved against the balance of the Accounts Payable account. 7. The Accounts Payable account is the control account; summarizes the balances of the creditor accounts. 8. Individual accounts of all creditors. 9. Helps pay bills promptly and maintain a good credit reputation. 10. Add Freight In to Purchases, then deduct Purchases Returns and Allowances. 11. Purchases journal. 12. Purchase invoice denotes incoming merchandise, sales invoice denotes outgoing (sold) merchandise. 13. Debit. 14. Income Statement in the Cost of Goods Sold section. 15. Provides a separate record. 16. a. Net amount of the invoice is due 30 days after the date of the invoice. b. If the invoice is paid within 10 days of its date, a 2 percent discount may be taken; otherwise, the total amount is due in 30 days. c. The amount of the invoice is due 10 days after the end of the month in which the invoice is issued. d. Payment in full is due 20 days after date of the invoice. e. If the invoice is paid within 10 days of its date, a 1% discount may be taken; otherwise the total amount is due in 20 days. f. If payment is made 166 Chapter 8 Copyright The McGraw-Hill Companies, Inc. All rights reserved.

2 within 5 days of its date, a 3 percent discount may be taken; otherwise the total amount is due in 30 days. g. Payment in full is due 15 days after the end of the month in which the invoice is issued. 17. Not entered in purchases journal; only used for recording merchandise purchased for resale. It should be recorded in the general journal. Exercises Exercise Purchases Journal 2. General Journal 3. Cash Payments Journal 4. Purchases Journal 5. General Journal 6. Cash Payments Journal Exercise 8.2 Dr. Cr , Exercise 8.3 PURCHASES JOURNAL PAGE 6 Accounts Freight Invoice Inv. Payable Purchases in Date Purchased From Number Date Terms Ref. Credit Debit Debit July 1 Auto Parts Corp /27 n/30 2,078 1, Aplex Company 441 6/30 1/10, n/60 3,200 3, The Custom Sounds Shop, Inc /1 2/10, n/30 2,550 2, Specialty Tire Company /8 2/10, n/30 4,250 4,250 Exercise 8.4 GENERAL JOURNAL PAGE 10 Date Description Ref. Debit Credit Feb. 9 Accounts Payable/Discount Appliance Corporation.... 3,920 Purchases Returns & Allowances ,920 Received CM 244 for damaged merchandise that was returned; original purchase made on Inv. 4101, January 3, Copyright The McGraw-Hill Companies, Inc. All rights reserved. Chapter 8 167

3 Exercise 8.5 GENERAL JOURNAL PAGE Date Description Ref. Debit Credit Mar. 17 Accounts Payable/Town Appliance Mart ,000 Purchases Returns & Allowances ,000 Received CM 112 for damages merchandise; original purchase made on Inv. 911, February 20, Exercise 8.6 Purchases $42,840 Freight In ,076 Delivered Cost of Purchases $44,916 Less Purchases Returns and Allowances. 4,890 Net Delivered Cost of Purchases $40,026 Exercise 8.7 a. The total of the schedule of accounts payable will not equal the balance of the Accounts Payable controlling account. b. The total of the schedule of accounts payable will not equal the balance of the Accounts Payable controlling account. c. Jackson Company will notify us that their invoice has not been paid. d. Statements from Jackson Company and Baxton Company will not agree with the balances reflected in the A/P subsidiary ledger. Exercise 8.8 a. Purchases, $93,420 b. Purchase Returns & Allowances, $3,250 c. Freight In, $3,680 d. Delivered Cost of Purchases $100, Chapter 8 Copyright The McGraw-Hill Companies, Inc. All rights reserved.

4 Problems Problem 8.1A PURCHASES JOURNAL PAGE 14 Accounts Freight Invoice Inv. Payable Purchases in Date Purchased From Number Date Terms Ref. Credit Debit Debit June 1 Jones Company /27 n/60 2,175 1, Camera & Films Products /3 n/45 1,390 1, The Optical Supply Store /9 1/10, n/ Camera & Films Products /15 n/45 1,125 1, Chicago Case Company /18 n/45 1,940 1, Zant Corporation /24 2/10, n/30 2,590 2, Totals 10,126 9, (205) (501) (502) GENERAL JOURNAL PAGE 38 Date Description Ref. Debit Credit June 18 Accounts Payable/Jones Company / 375 Purchase Returns & Allowances Received CM 110 for defective cameras that were returned; original purchase made on Inv. 4241, May 27, 30 Accounts Payable/Chicago Case Company / 240 Purchase Returns & Allowances Received CM 1108 for allowance for damaged merchandise, original purchase made on Inv. 3108, June 18, Copyright The McGraw-Hill Companies, Inc. All rights reserved. Chapter 8 169

5 GENERAL LEDGER ACCOUNT Accounts Payable ACCOUNT NO. 205 June 1 13, J , J , P14 10,126 23,415 ACCOUNT Purchases ACCOUNT NO. 501 June 30 P14 9,751 9,751 ACCOUNT Freight In ACCOUNT NO. 502 June 30 P ACCOUNT Purchases Returns and Allowances ACCOUNT NO. 503 June 18 J J Purchases $9,751 Freight In Delivered Cost of Purchases $10,126 Less Purchases Returns & Allowances Net Delivered Cost of Purchases $ 9,511 Analyze: Total Purchases in June were $9,751. Problem 8.2A ACCOUNTS PAYABLE SUBSIDIARY LEDGER NAME Camera & Films Products TERMS n/45 June 1 10,480 8 Invoice 1102, 6/3/07 P14 1,390 11, Invoice 1148, 6/15/07 P14 1,125 12, Chapter 8 Copyright The McGraw-Hill Companies, Inc. All rights reserved.

6 ACCOUNTS PAYABLE SUBSIDIARY LEDGER NAME Chicago Case Company TERMS n/45 June 1 1, Invoice 3108, 6/18/07 P14 1,940 3, CM 1108 J ,900 NAME Jones Company TERMS n/60 June 1 Invoice 4241, 5/27/07 P14 2,175 2, CM 110 J ,800 NAME The Optical Supply Store TERMS 1/10, n/60 June 1 2, Invoice 7282, 6/9/07 P ,130 NAME Zant Corporation TERMS 2/10, n/30 June 28 Invoice 5027, 6/24/07 P14 2,590 2,590 PHOTO MART Schedule of Accounts Payable June 30, Camera & Films Products ,995 Chicago Case Company ,900 Jones Company ,800 The Optical Supply Store ,130 Zant Corporation ,590 Total ,415 Analyze: The balance owed to The Optical Supply Store on June 30 is $3,130. Copyright The McGraw-Hill Companies, Inc. All rights reserved. Chapter 8 171

7 Problem 8.3A PURCHASES JOURNAL PAGE 8 Accounts Freight Invoice Inv. Payable Purchases in Date Purchased From Number Date Terms Ref. Credit Debit Debit July 1 Brown Corporation /26 n/60 5,220 4, Brooks Garden Furniture Co /2 n/45 4,922 4, Lawn & Garden Supply /5 n/ Lawn & Garden Supply /15 n/30 1,456 1, Cameron Rubber Company /17 1/15, n/60 3,904 3, Wilson Industrial Products /26 2/10, n/30 23,440 22, ,892 37,700 2,192 (205) (501) (502) GENERAL JOURNAL PAGE 20 Date Description Ref. Debit Credit July 16 Accounts Payable/Brooks Garden Furniture Company. 205/ 600 Purchases Returns & Allowances Received CM 110 for allowance for damaged merchandise; original purchase made on Inv. 639, July 2 28 Accounts Payable/Cameron Rubber Company / 800 Purchases Returns & Allowances Received CM 223 for damaged merchandise that was returned; original purchase made on Inv. 1785, July 17 GENERAL LEDGER ACCOUNT Accounts Payable ACCOUNT NO. 205 July 1 35, J , J , P8 39,892 74,372 ACCOUNT Purchases ACCOUNT NO. 501 July 31 P8 37,700 37, Chapter 8 Copyright The McGraw-Hill Companies, Inc. All rights reserved.

8 GENERAL LEDGER ACCOUNT Freight In ACCOUNT NO. 502 July 31 P8 2,192 2,192 ACCOUNT Purchases Returns & Allowances ACCOUNT NO. 503 July 16 J J ,400 Purchases $37,700 Freight In ,192 Delivered Cost of Purchases $39,892 Less Purchases Returns & Allowances... 1,400 Net Delivered Cost of Purchases $38,492 ACCOUNTS PAYABLE SUBSIDIARY LEDGER NAME Brooks Garden Furniture Company TERMS n/45 July 1 11,120 5 Invoice 639, 7/2/07 P8 4,922 16, CM 110 J ,442 NAME Brown Corporation TERMS n/60 July 1 18,120 1 Invoice 1011, 6/26/07 P8 5,220 23,340 NAME Cameron Rubber Company TERMS 1/15, n/60 July 21 Invoice 1785, 7/17/07 P8 3,904 3, CM 223 J ,104 Copyright The McGraw-Hill Companies, Inc. All rights reserved. Chapter 8 173

9 ACCOUNTS PAYABLE SUBSIDIARY LEDGER NAME Lawn & Garden Supply TERMS n/30 July 1 6,640 9 Invoice 8164, 7/5/07 P , Invoice 9050, 7/15/07 P8 1,456 9,046 NAME Wilson Industrial Products TERMS 2/10, n/30 July 31 Invoice 8985, 7/26/07 P8 23,440 23,440 THE PATIO SHOP Schedule of Accounts Payable July 31, Brooks Garden Furniture Company ,442 Brown Corporation ,340 Cameron Rubber Company ,104 Lawn and Garden Supply ,046 Wilson Industrial Products ,440 Total ,372 Analyze: Total freight charges for the month of July were $2,192. Problem 8.4A PURCHASES JOURNAL PAGE 5 Accounts Freight Invoice Inv. Payable Purchases in Date Purchased From Number Date Terms Ref. Credit Debit Debit Sept. 3 Dalton Office Furniture Co /29 n/30 8,132 7, Apex Office Machines, Inc /2 n/60 11,300 11, Davis Corporation /11 n/30 2,680 2, Apex Office Machines, Inc /15 n/60 1,000 1, Brown Paper Company /18 1/10, n/30 7,600 7, Zenn Furniture, Inc /25 2/10, n/30 4,000 3, ,712 34, (205) (501) (502) 174 Chapter 8 Copyright The McGraw-Hill Companies, Inc. All rights reserved.

10 GENERAL JOURNAL PAGE 14 Date Description Ref. Debit Credit Sept. 10 Accounts Payable/Dalton Office Furniture Co / 600 Purchases Returns & Allowances Received CM 511 for allowance for damaged merchandise; original purchase made on Inv. 4213, August Accounts Payable/Apex Office Machines, Inc / 880 Purchases Returns & Allowances Received CM 312 for damaged merchandise that was returned; original purchase made on Inv , September 15 GENERAL LEDGER ACCOUNT Accounts Payable ACCOUNT NO. 205 Sept. 1 28, J , J , P5 34,712 61,488 ACCOUNT Purchases ACCOUNT NO. 501 Sept. 30 P5 34,116 34,116 ACCOUNT Freight In ACCOUNT NO. 502 Sept. 30 P ACCOUNT Purchases Returns and Allowances ACCOUNT NO. 503 Sept. 10 J J ,480 Copyright The McGraw-Hill Companies, Inc. All rights reserved. Chapter 8 175

11 Net Delivered Cost of Purchases Purchases $34,116 Freight in Delivered Cost of Purchases $34,712 Less Purchase Returns & Allowances.... 1,480 Net Delivered Cost of Purchases $33,232 ACCOUNTS PAYABLE SUBSIDIARY LEDGER NAME Apex Office Machines, Inc. TERMS n/60 Sept. 1 10,960 7 Invoice 9217, 9/2/07 P5 11,300 22, Invoice 11011, 9/15/07 P5 1,000 23, CM 312 J ,380 NAME Brown Paper Company TERMS 1/10, n/30 Sept. 1 2, Invoice 6498, 9/18/07 P5 7,600 9,720 NAME Dalton Office Furniture Company TERMS n/30 Sept. 1 9,576 3 Invoice 4213, 8/29/07 P5 8,132 17, CM 511 J ,108 NAME Davis Corporation TERMS n/30 Sept. 16 Invoice 8066, 9/11/07 P5 2,680 2,680 NAME Zenn Furniture, Inc. TERMS 2/10, n/30 Sept. 1 5, Invoice 696, 9/25/07 P5 4,000 9, Chapter 8 Copyright The McGraw-Hill Companies, Inc. All rights reserved.

12 PROFESSIONAL OFFICE PRODUCTS CENTER Schedule of Accounts Payable September 30, Apex Office Machines, Inc ,380 Brown Paper Company ,720 Dalton Office Furniture Company ,108 Davis Corporation ,680 Zenn Furniture, Inc ,600 Total ,488 Analyze: Total purchases returns and allowances for September were $1,480. This represents 4.34% of the total purchases ($1,480/$34,116). Problem 8.1B PURCHASES JOURNAL PAGE 15 Accounts Freight Invoice Inv. Payable Purchases in Date Purchased From Number Date Terms Ref. Credit Debit Debit May 1 Colorado Shop for Skiers /28 n/45 6,820 6, Alaska Supply Company /2 n/30 11,100 11, Barrons Winter Fashions 986 5/11 n/60 5,000 5, Alaska Supply Company /15 n/30 3,160 3, Cold Mountain Clothing Company /16 1/10, n/60 2,240 2, Taylor Ski Goods /27 2/10, n/30 3,400 3, ,720 31, (205) (501) (502) GENERAL JOURNAL PAGE 38 Date Description Ref. Debit Credit May 9 Accounts Payable/Colorado Shop for Skiers / 1,600 Purchases Returns and Allowances ,600 Received Credit Memo 155 for damaged ski boots that were returned; original sale made on Inv. 6572, April 28, 28 Accounts Payable/Alaska Supply Company / 420 Purchases Returns and Allowances Received Credit Memo 38 for defective ski poles that were returned; original purchase made on Inv. 5011, May 15, Copyright The McGraw-Hill Companies, Inc. All rights reserved. Chapter 8 177

13 GENERAL LEDGER ACCOUNT Accounts Payable ACCOUNT NO. 205 May 1 21,608 9 J38 1,600 20, J , J15 31,720 51,308 ACCOUNT Purchases ACCOUNT NO. 501 May 31 P15 31,400 31,400 ACCOUNT Freight In ACCOUNT NO. 502 May 31 P ACCOUNT Purchases Returns and Allowances ACCOUNT NO. 503 May 9 J38 1,600 1, J ,020 Purchases $31,400 Freight In Delivered Cost of Purchases $31,720 Less Purchases Returns and Allowances. 2,020 Net Delivered Cost of Purchases $29,700 Analyze: Total accounts payable of $31,720 was posted from the purchases journal to the general ledger for May. 178 Chapter 8 Copyright The McGraw-Hill Companies, Inc. All rights reserved.

14 Problem 8.2B ACCOUNTS PAYABLE SUBSIDIARY LEDGER NAME Alaska Supply Company TERMS n/30 May 1 1,700 8 Invoice 4916, 5/2/07 P15 11,100 12, Invoice 5011, 5/15/07 P15 3,160 15, CM 38 J ,540 NAME Barrons Winter Fashions, Inc. TERMS n/60 May 1 8, Invoice 986, 5/11/07 P15 5,000 13,720 NAME Cold Mountain Clothing Company TERMS 1/10, n/60 May 1 5, Invoice 4019, 5/16/07 P15 2,240 7,240 NAME Colorado Shop for Skiers TERMS n/45 May 1 6,188 1 Invoice 6572, 4/28/07 P15 6,820 13,008 9 CM 155 J38 1,600 11,408 NAME Taylor Ski Goods TERMS 2/10, n/30 May 31 Invoice 8354, 5/27/07 P15 3,400 3,400 Copyright The McGraw-Hill Companies, Inc. All rights reserved. Chapter 8 179

15 DENVER SKI SHOP Schedule of Accounts Payable May 31, Alaska Supply Company ,540 Barrons Winter Fashions, Inc ,720 Cold Mountain Clothing Company ,240 Colorado Shop for Skiers ,408 Taylor Ski Goods ,400 Total ,308 Analyze: Denver Ski Shop owed Colorado Shop for Skiers $11,408 on May 31. Problem 8.3B PURCHASES JOURNAL PAGE 8 Accounts Freight Invoice Inv. Payable Purchases in Date Purchased From Number Date Terms Ref. Credit Debit Debit Dec. 1 Selby Corporation /26 n/45 5,936 5, Patio Furniture Shop /2 1/15, n/60 5,800 5, Spring Lawn Center /4 n/30 1,148 1, Spring Lawn Center /15 n/30 1,756 1, Delta Rubber Company /17 n/ Cason Industries /26 2/10, n/30 3,780 3, ,256 18, (205) (501) (502) GENERAL JOURNAL PAGE 20 Date Description Ref. Debit Credit Dec. 16 Accounts Payable/Patio Furniture Shop / 400 Purchases Returns and Allowances Received Credit Memo 101 for allowance for damaged merchandise; original purchase made on Inv. 633, Dec Accounts Payable/Delta Rubber Company / 150 Purchases Returns and Allowances Received Credit Memo 210 for damaged merchandise that was returned; original purchase made on Inv. 8517, Dec Chapter 8 Copyright The McGraw-Hill Companies, Inc. All rights reserved.

16 GENERAL LEDGER ACCOUNT Accounts Payable ACCOUNT NO. 205 Dec. 1 13, J , J , P8 19,256 32,196 ACCOUNT Purchases ACCOUNT NO. 501 Dec. 31 P8 18,688 18,688 ACCOUNT Freight In ACCOUNT NO. 502 Dec. 31 P ACCOUNT Purchases Returns and Allowances ACCOUNT NO. 503 Dec. 16 J J Purchases $18,688 Freight In Delivered Cost of Purchases $19,256 Less Purchases Returns and Allowances. 550 Net Delivered Cost of Purchases $18,706 Copyright The McGraw-Hill Companies, Inc. All rights reserved. Chapter 8 181

17 ACCOUNTS PAYABLE SUBSIDIARY LEDGER NAME Cason Industries TERMS 2/10, n/30 Dec. 1 2, Invoice 8819, 12/26/07 P8 3,780 5,930 NAME Delta Rubber Company TERMS n/60 Dec. 1 3, Invoice 8517, 12/17/07 P , CM 210 J ,536 NAME Patio Furniture Shop TERMS 1/15, n/60 Dec. 5 Invoice 633, 12/2/07 P8 5,800 5, CM 101 J ,400 NAME Selby Corporation TERMS n/45 Dec. 1 4,842 1 Invoice 2110, 11/26/07 P8 5,936 10,778 NAME Spring Lawn Center TERMS n/30 Dec. 1 2,648 9 Invoice 1127, 12/4/07 P8 1,148 3, Invoice 5731, 12/15/07 P8 1,756 5, Chapter 8 Copyright The McGraw-Hill Companies, Inc. All rights reserved.

18 LANDSCAPE SUPPLY CENTER Schedule of Accounts Payable December 31, Cason Industries ,930 Delta Rubber Company ,536 Patio Furniture Shop ,400 Selby Corporation ,778 Spring Lawn Center ,552 Total ,196 Analyze: Accounts Payable increased by $18,706 during the month of December. Problem 8.4B PURCHASES JOURNAL PAGE 4 Accounts Freight Invoice Inv. Payable Purchases in Date Purchased From Number Date Terms Ref. Credit Debit Debit Feb. 5 Packing & Mailing Supply Center, Inc /2 2/10, n/30 2,100 2, Gifts & Holiday Cards /5 2/10, n/30 1,900 1, Gifts & Holiday Cards /8 2/10, n/30 1,200 1, Specialty Business Cards /9 1/10, n/45 1,100 1, Business Forms, Inc /16 n/30 2,040 1, Specialty Business Cards /19 1/10, n/45 3,710 3, ,050 11, (203) (501) (502) GENERAL JOURNAL PAGE 12 Date Description Ref. Debit Credit Feb. 20 Accounts Payable/Gift & Holiday Cards / 200 Purchases Returns and Allowances Received Credit Memo 102 for damaged merchandise; original purchase made on Inv. 2808, dated February 5 27 Accounts Payable/Gift & Holiday Cards / 240 Purchases Returns and Allowances Received Credit Memo 118 for damaged merchandise; original purchase made on Inv. 2904, February 12 Copyright The McGraw-Hill Companies, Inc. All rights reserved. Chapter 8 183

19 GENERAL LEDGER ACCOUNT Accounts Payable ACCOUNT NO. 203 Feb. 1 15, J , J , P4 12,050 26,810 ACCOUNT Purchases ACCOUNT NO. 501 Feb. 28 P4 11,780 11,780 ACCOUNT Freight In ACCOUNT NO. 502 Feb. 28 P ACCOUNT Purchases Returns and Allowances ACCOUNT NO. 503 Feb. 20 J J Net Delivered Cost of Purchases Purchases $11,780 Freight In Delivered Cost of Purchases $12,050 Less Purchases Returns and Allowances. 440 Net Delivered Cost of Purchases $11, Chapter 8 Copyright The McGraw-Hill Companies, Inc. All rights reserved.

20 ACCOUNTS PAYABLE SUBSIDIARY LEDGER NAME Business Forms, Inc. TERMS n/30 Feb. 1 8, Invoice 2019, 2/16/07 2,040 10,040 NAME Gifts & Holiday Cards TERMS 2/10, n/30 Feb. 1 4,000 8 Invoice 2808, 2/5/07 P4 1,900 5, Invoice 2904, 2/8/07 P4 1,200 7, CM 102 J , CM 118 J ,660 NAME Packing & Mailing Supply Center, Inc. TERMS 2/10, n/30 Feb. 1 3,200 5 Invoice 502, 2/2/07 P4 2,100 5,300 NAME Specialty Business Cards TERMS 1/10, n/45 Feb. 13 Invoice 2013, 2/9/07 P4 1,100 1, Invoice 1376, 2/19/07 P4 3,710 4,810 SIMPSON S CARDS & NOVELTY SHOP Schedule of Accounts Payable February 28, Business Forms, Inc ,040 Gifts & Holiday Cards ,660 Packing & Mailing Supply Center, Inc ,300 Specialty Business Cards ,810 Total ,810 Analyze: Total freight charges for the month of February were $270. This represents 2.24% of delivered cost of purchases. Copyright The McGraw-Hill Companies, Inc. All rights reserved. Chapter 8 185

21 Challenge Problem PURCHASES JOURNAL PAGE 6 Accounts Freight Invoice Inv. Payable Purchases in Date Purchased From Number Date Terms Ref. Credit Debit Debit Jan. 3 Fashion Center /26 n/30 5,112 5, Handbag Depot /28 2/10, n/30 3,569 3, House of Styles, Inc /3 2/10, n/30 3,968 3, Modern Woman Pants & Suits Company 110 1/5 n/30 2,360 2, International Executive 104 1/9 2/10, n/30 5,529 5, Mr. John s Shoes 118 1/14 n/60 3,200 3, Hosiery Warehouse /20 2/10, n/ Modern Woman Pants & Suits Company 315 1/26 n/30 1,600 1, Special Occasion Wholesale Dress Shop /27 2/10, n/30 5,475 5, ,713 31, (205) (501) (502) SALES JOURNAL PAGE 1 Accounts Sales Tax Sales Slip Receivable Payable Sales Date No. Customer s Name Ref. Debit Credit Credit Jan Sarah Valdez Linda Carter Teresa Collins Demetria Davis Jeraldine Wells Amalia Rodrigez Rosabla Vasquez , , Sherrye Samuels Cecila Lin Tonya Ennis Isabel James , ,550 (111) (231) (401) 186 Chapter 8 Copyright The McGraw-Hill Companies, Inc. All rights reserved.

22 ACCOUNTS PAYABLE SUBSIDIARY LEDGER NAME Fashion Center TERMS n/30 Jan. 3 Invoice 101, 12/26/06 P6 5,112 5,112 NAME Handbag Depot TERMS 2/10, n/30 Jan. 5 Invoice 223, 12/28/06 P6 3,569 3,569 NAME Hosiery Warehouse TERMS 2/10, n/30 Jan. 25 Invoice 1012, 1/20/07 P NAME House of Styles, Inc. TERMS 2/10, n/30 Jan. 7 Invoice 556, 1/3/07 P6 3,968 3,968 NAME International Executive TERMS 2/10, n/30 Jan. 12 Invoice 104, 1/9/07 P6 5,529 5,529 NAME Modern Woman Pants & Suits Company TERMS n/30 Jan. 9 Invoice 110, 1/5/07 P6 2,360 2, Invoice 315, 1/26/07 P6 1,600 3,960 NAME Mr. John s Shoes TERMS n/60 Jan. 18 Invoice 118, 1/14/07 P6 3,200 3,200 Copyright The McGraw-Hill Companies, Inc. All rights reserved. Chapter 8 187

23 ACCOUNTS PAYABLE SUBSIDIARY LEDGER NAME Special Occasion Wholesale Dress Shop TERMS 2/10, n/30 Jan. 31 Invoice 1044, 1/27/07 P6 5,475 5,475 ACCOUNTS RECEIVABLE SUBSIDIARY LEDGER NAME Linda Carter TERMS n/30 Jan. 5 Sales Slip 102 S NAME Teresa Collins TERMS n/30 Jan. 6 Sales Slip 103 S NAME Demetria Davis TERMS n/30 Jan. 10 Sales Slip 104 S NAME Tonya Ennis TERMS n/30 Jan. 29 Sales Slip 110 S NAME Isabel James TERMS n/30 Jan. 31 Sales Slip 111 S Chapter 8 Copyright The McGraw-Hill Companies, Inc. All rights reserved.

24 ACCOUNTS RECEIVABLE SUBSIDIARY LEDGER NAME Cecila Lin TERMS n/30 Jan. 25 Sales Slip 109 S NAME Amalia Rodrigez TERMS n/30 Jan. 17 Sales Slip 106 S NAME Sherrye Samuels TERMS n/30 Jan. 24 Sales Slip 108 S NAME Sarah Valdez TERMS n/30 Jan. 4 Sales Slip 101 S NAME Rosabla Vasquez TERMS n/30 Jan. 21 Sales Slip 107 S1 2,160 2,160 NAME Jeraldine Wells TERMS n/30 Jan. 14 Sales Slip 105 S Copyright The McGraw-Hill Companies, Inc. All rights reserved. Chapter 8 189

25 GENERAL LEDGER ACCOUNT Accounts Receivable ACCOUNT NO. 111 Jan. 31 S1 8,154 8,154 ACCOUNT Accounts Payable ACCOUNT NO. 205 Jan. 31 P6 31,713 31,713 ACCOUNT Sales Tax Payable ACCOUNT NO. 231 Jan. 31 S ACCOUNT Sales ACCOUNT NO. 401 Jan. 31 S1 7,550 7,550 ACCOUNT Purchases ACCOUNT NO. 501 Jan. 31 P6 31,010 31,010 ACCOUNT Freight In ACCOUNT NO. 502 Jan. 31 P Chapter 8 Copyright The McGraw-Hill Companies, Inc. All rights reserved.

26 WORLD OF FASHIONS Schedule of Accounts Payable January 31, Fashion Center ,112 Handbag Depot ,569 Hosiery Warehouse House of Styles, Inc ,968 International Executive ,529 Modern Woman Pants & Suits Company.. 3,960 Mr. John s Shoes ,200 Special Occasion Wholesale Dress Shop. 5,475 Total ,713 WORLD OF FASHIONS Schedule of Accounts Receivable January 31, Linda Carter Teresa Collins Demetria Davis Tonya Ennis Isabel James Cecila Lin Amalia Rodrigez Sherrye Samuels Sarah Valdez Rosabla Vasquez ,160 Jeraldine Wells Total ,154 Net Delivered Cost of Purchases Purchases $31,010 Freight In Delivered Cost of Purchases $31,713 Copyright The McGraw-Hill Companies, Inc. All rights reserved. Chapter 8 191

27 Critical Thinking Problem 1. To determine whether Passions Linen Shop was billed in error: a. Review Passions Linen Shop s purchase order file for duplicate orders to Sensuous Linen Company. If two orders were placed for the same merchandise, check the receiving reports to determine if both shipments were received. If Passions Linen Shop does not prenumber its purchase orders, two orders may have been issued for the same merchandise. If only one purchase order was placed, check the receiving reports for a duplicate shipment. b. If no duplicate purchase order or duplicate receipt of merchandise is found, ask Sensuous Linen Company to identify why they made two shipments of sheets. If Sensuous Linen Company made the second shipment in error, they will be obligated to accept return of the sheets. 2. To prevent this situation from occurring again: a. Prenumber all purchase order forms and periodically check to be sure that all forms can be accounted for. b. Require all purchase orders to have proper authorization before they are issued. Alexander can authorize all purchase orders, or she can designate appropriate personnel to handle this function. c. Require all shipments of merchandise received by the shop to be compared to the corresponding purchase order and the invoice received from the supplier. Any shipment for which there is no purchase order should be questioned immediately. d. Require the purchase order and corresponding receiving report to be attached to the invoice before it is presented for payment. Alexander can establish internal control procedures to reduce the possibility of issuing duplicate purchase orders, but she cannot prevent suppliers from making duplicate shipments in error. If the appropriate documentation accompanies invoices, though, she will know that the error is not Passions Linen Shop s. Business Connections Managerial Focus 1. Maintenance of good credit reputation, taking advantage of cash discounts. 2. Allows a business to buy on credit, using resources more effectively. 3. It is important to establish a good credit rating for future cash needs. Additionally, cash could be used for other purposes. 4. Protect against fraud and excessive investment in merchandise. 5. Ensures authorized-only purchases, verifies receipt of goods and accuracy of invoices, distributes tasks. 6. Creates a storage problem, risks obsolescence of the merchandise, and ties up funds. Ethical Dilemma Anait s actions are not ethical. If she cannot get a raise from this company she needs to locate a new job. When she performs the unethical action of getting money from a fictitious vendor she is stealing dollar for dollar from her company. Her money comes right out of net income for this company. When Anait finds how easy it is to get this money she will create more vendors and more invoices. To prevent these actions the controller should require each vendor to receive his/her approval. The procedure to only view the checks over $100 can still be maintained with this one approval process. Streetwise 1. $5,766 million, increased by $607 million. 2. Adoption of new accounting rules (EITF 02-16), improved inventory management, and changes in merchandising mix. 192 Chapter 8 Copyright The McGraw-Hill Companies, Inc. All rights reserved.

28 Financial Statement Analysis : 76.8%; 2003: 76.1% 2. Answers will vary. Students may suggest price changes on merchandise from suppliers, discounts, or shipping costs variances. Analyze Online: Answers will vary depending on the year. Extending the Thought Answers will vary. Students should demonstrate an understanding of the proper procedure when processing accounts payable. They should discuss the purchase order, receipt of merchandise, comparison of receiving report to invoice, and then payment of invoice. Business Communication Students memos will vary. Students should demonstrate an understanding of the division of labor necessary to ensure a system of checks and balances. They may suggest that only one person have the authority to place orders with a supplier, while another person be responsible for the receipt of the order. A third employee should process the invoice for payment. Team Work The most advantageous would be a Net 45 days to pay the companies accounts payable, and have the customers pay 2/10 net 30. Your customers would then be paying you before you need to pay the vendor. Internet Connection Your Company address and phone number and the vendor s name and address. The amount of the check or purchase order. Reference for the purchase order number or purchase requisition. Practice Test Answer Key Part A 1. T 2. F 3. F 4. T 5. F 6. F 7. T 8. F 9. F 10. T 11. F 12. T 13. T 14. T 15. T 16. T 17. T 18. T True False Part B Exercise 1. In the Cost of Goods Sold Section. 2. The Accounts Payable Column. 3. The General Journal. 4. It is not recorded in the purchases journal at all; it is entered in the cash payments journal. 5. Accounts Payable Credit = Purchases Debit + Freight In Debit. 6. All Columns. 7. An Expense. Copyright The McGraw-Hill Companies, Inc. All rights reserved. Chapter 8 193