CHAPTER 8 ACCOUNTING FOR PURCHASES, ACCOUNTS PAYABLE, AND CASH PAYMENTS

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1 CHAPTER 8 ACCOUNTING FOR PURCHASES, ACCOUNTS PAYABLE, AND CASH PAYMENTS 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 Net revenues for 2009 declined 8%, from $3.4 billion in 2008 to $3.1 billion in Williams-Sonona, Inc. owns and operates six separate, home-centered retail businesses: Williams-Sonoma, Pottery Barn, Pottery Barn Kids, PBTeen, Williams-Sonoma Home and West Elm. The company operates 590 retail stores. 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 new terms, concepts, and procedures presented in the chapter. 1. Authorization of purchase, check-in of goods, verification of invoice, proper authorization of payment, division of labor and tasks, use of prenumbered forms. 2. Documentation of credit issued. 3. Allowance made for damaged merchandise. 4. Documentation of returned merchandise. 5. 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. 6. The Accounts Payable account is the control account; summarizes the balances of the creditor accounts. 7. Individual accounts of all creditors. 8. Helps pay bills promptly and maintain a good credit reputation. 9. Add Freight In to Purchases, then deduct Purchases Returns and Allowances and Purchases Discounts. 10. Purchases journal. 11. Purchase invoice denotes incoming merchandise, sales invoice denotes outgoing (sold) merchandise. 12. Debit. 13. Income Statement in the Cost of Goods Sold section. 14. Provides a separate record.

2 15. 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, 1% discount may be taken; otherwise, the total amount is due in 20 days. f. If payment is made 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.

3 EXERCISE 8.1 Dr Purchases Cr Purchases Discounts Cr Purchases Return and Allowances Dr Freight In

4 EXERCISE 8.2 GENERAL JOURNAL PAGE June 4 Purchases Accounts Payable/Schmidt Company Purchased merchandise on account, 4 5 Invoice 100, n/ Purchases Cash Purchased merchandise for cash Accounts Payable/Schmidt Company Cash Paid amount due, Invoice

5 EXERCISE 8.3 GENERAL JOURNAL PAGE DATE DESCRIPTION Post Apr. 1 Purchases Cash Purchased merchandise for cash Cash Purchases Returns and Allowances Returned merchandise purchased April 1 for refund Purchases Freight In Accounts Payable/Stein Distributors Purchased merchandise on account, Invoice 125, n/ Accounts Payable/Stein Distributors Purchases Returns and Allowances Received Credit Memo 202 for return of damaged merchandise Accounts Payable/Stein Distributors ($697 $43) Cash Paid amount due on Invoice 125 after receipt of Credit Memo 202, check

6 EXERCISE 8.4 GENERAL JOURNAL PAGE DEBIT CREDIT Apr. 1 Purchases Freight In Accounts Payable/O Rourke Fabricators Purchased merchandise on account, 5 6 Invoice 885, 2/10, n/ Accounts Payable/O Rourke Fabricators Purchases Discounts (2% x $1,000) Cash ($1,020 - $20) Paid amount due on Invoice 885, Check Purchases Freight In Accounts Payable/Kroll Company Purchased merchandise on account, Invoice 145, 2/10, n/ Accounts Payable/Kroll Company Purchases Returns and Allowances Received Credit Memo 332 for return of damaged merchandise Accounts Payable/Kroll Company ($775 - $50) Purchases Discounts (2% x ($775 - $50)) Cash ($725 - $14) Paid amount due on Invoice 145, Check

7 EXERCISE 8.5 GENERAL JOURNAL PAGE DATE DESCRIPTION March 8 Purchases ($4,000 - $800 = $3,200; $3,200 - $320 = $2,880) Accounts Payable/Classy Accessories Purchased merchandise on account, 4 5 Invoice 1091, 1/10, n/ Accounts Payable/Classy Accessories Purchases Discounts (1% x $2,880) Cash ($2,880 - $28.80) Paid amount due on Invoice 1091, Check Post DEBIT CREDIT EXERCISE 8.6 DATE GENERAL JOURNAL PAGE 20 DESCRIPTION Feb. 10 Purchases Accounts Payable/Schmidt, Inc Purchased merchandise on account., 4 5 Invoice 1980, terms 2/10, n/ Accounts Payable/Schmidt, Inc Purchases Returns and Allowances Received Credit Memorandum 230 for return 9 10 of damaged merchandise, Invoice Accounts Payable/Schmidt, Inc. ($2,000 - $100) Purchases Discounts ($2,000 - $100) x 2% Cash ($1,900 - $38) Paid amount owed on Invoice less return of February 13, Check # Post DEBIT CREDIT

8 EXERCISE 8.6 (continued) DATE GENERAL JOURNAL PAGE 20 DESCRIPTION Post Feb. 10 Accounts Receivable/Bryant Company Sales Sold merchandise on account., 4 5 Invoice 1980, terms 2/10, n/ Sales Returns and Allowances Accounts Receivable/Bryant Company Accepted return of damaged merchandise, Credit 9 10 Memorandum 230; original sale made on Invoice 1980, February Sales Discounts Cash Accounts Receivable/Bryant Company Received payment on on Invoice 1980, less sales discount EXERCISE 8.7 Purchases Add freight in Delivered Cost of Purchases Less Purchase Returns and Allowances Purchases Discounts Net Delivered Cost of Purchases $2,810 2,050 $40,795 2,226 43,021 4,860 $38,161

9 EXERCISE 8.8 GENERAL JOURNAL PAGE 40 DEBIT CREDIT Jan. 8 Accounts Payable/Stamos Distributors Cash Made partial payment on account, check Accounts Payable/Evans Enterprises Purchases Returns and Allowances Received Credit Memorandum 123 as allowance 8 9 for discolored merchandise

10 EXERCISE 8.8 (continued) ACCOUNT Accounts Payable ACCOUNT NO. DATE ITEM Post BALANCE Jan. 1 Balance J J NAME ADDRESS Evans Enterprises DEBIT TERMS CREDIT BALANCE Jan. 1 Balance CM 123 J NAME ADDRESS Stamos Distributors DEBIT TERMS CREDIT BALANCE Jan. 1 Balance J NAME ADDRESS DATE Tonetta Company DESCRIPTION Post DEBIT TERMS CREDIT BALANCE Jan. 1 Balance

11 EXERCISE 8.9 Trends, Inc. Schedule of Accounts Payable January 31, Evans Enterprises Stamos Distributors Tonetta Company Total Does the total of your accounts payable schedule agree with the balance of the accounts payable account in the general ledger at January 31,? Yes. The total of the schedule of accounts payable is $4,800, and the balance of the Accounts Payable account is $4,800.

12 PROBLEM 8.1A GENERAL JOURNAL PAGE April 1 Purchases Freight In Accounts Payable/Camera & Film Products Purchased merchandise on account, 5 6 Invoice 825, n/ Purchases Accounts Payable/Vision Supplies, Inc Purchased lenses on account, Invoice 998, n/ Purchases Accounts Payable/Optical Products Purchased DVD camcorders on account, Invoice 4101, n/ Purchases Cash Recorded various cash purchases for April Purchases Freight In Accounts Payable/Myers Brothers Camera Supplies Purchased lighting equipment on account, Invoice 9288, n/ Accounts Payable/Vision Supplies, Inc Cash Issues chk 102 for partial payment of Invoice Purchases Cash Recorded various cash purchases for April Accounts Payable/Camera & Film Products Cash Issued chk 103 for full payment of Invoice

13 PROBLEM 8.1A (continued) ACCOUNT Cash GENERAL LEDGER ACCOUNT NO. April 1 Balance J J J J BALANCE ACCOUNT Accounts Payable ACCOUNT NO. April 1 J J J J J J BALANCE ACCOUNT Purchases ACCOUNT NO. April 1 J J J J J J BALANCE

14 PROBLEM 8.1A (continued) ACCOUNT Freight In GENERAL LEDGER ACCOUNT NO. 502 BALANCE April 1 J J Analyze: The total cash payments on account during April were $1,516.

15 PROBLEM 8.2A GENERAL JOURNAL PAGE Sept. 2 Purchases Freight In Accounts Payable/Colorado Ski Shop Purchased ski boots on account, 5 6 Invoice 6672, n/ Purchases Accounts Payable/Alaska Supply Company Purchased skis on account, Invoice 5916, terms 1/10, n/ Accounts Payable/Colorado Ski Shop Purchases Returns and Allowances Received Credit Memorandum 165 for $ for damaged ski boots purchased on Sept Purchases Accounts Payable/Cold Mountain Clothing Company Purchased ski jackets on account, Invoice 4091, n/ Accounts Payable/Alaska Supply Company Purchases Discounts ($11,200 x 1%) Cash ($11,200 - $112) Paid amount due on Invoice 5916, Check Purchases Freight In Accounts Payable/Alaska Supply Company Purchased ski poles on account, Invoice 5950, terms 1/10, n/

16 PROBLEM 8.2A (continued) GENERAL JOURNAL PAGE Sept. 23 Purchases Accounts Payable/Swenson Ski Goods Purchased ski pants on account, 4 5 Invoice 528, n/ Accounts Payable/Swenson Ski Goods Purchases Return and Allowances Received Credit Memorandum 245 for $ for defective ski pants, original purchase made on Sept Purchases Freight In Accounts Payable/Colorado Ski Shop Purchased ski sweaters on account, Invoice 6722, n/ Accounts Payable/Colorado Ski Shop Cash ($5,810 - $900) Paid amount due on Invoice 6672 less return of Sept. 7, Check Analyze: The amount of the cash discount on September 12 was $112.

17 PROBLEM 8.3A ACCOUNT Cash GENERAL LEDGER ACCOUNT NO. Sept 1 Balance J J BALANCE ACCOUNT Accounts Payable DATE DESCRIPTION Post ACCOUNT NO. Sept 2 J J J J J J J J J J BALANCE ACCOUNT Purchases ACCOUNT NO. BALANCE Sept 2 J J J J J J

18 PROBLEM 8.3A (continued) ACCOUNT Freight In ACCOUNT NO. 502 BALANCE Sept 2 J J J ACCOUNT Purchases Returns and Allowances ACCOUNT NO. 503 BALANCE Sept 7 J J ACCOUNT Purchases Discounts ACCOUNT NO. 504 BALANCE Sept 12 J

19 PROBLEM 8.3A (continued) NAME ADDRESS DATE ACCOUNTS PAYABLE SUBSIDIARY LEDGER Alaska Supply Company DESCRIPTION Post DEBIT CREDIT TERMS 1/10, n/30 BALANCE Sept. 3 Invoice 5916 J J Invoice 5950 J NAME ADDRESS DATE Cold Mountain Clothing Company DESCRIPTION Post DEBIT CREDIT TERMS n/30 BALANCE Sept. 11 Invoice 4091 J NAME ADDRESS DATE Colorado Ski Shop DESCRIPTION Post DEBIT CREDIT TERMS Sept. 2 Invoice 6672 J CM 165 J Invoice 6722 J J n/30 BALANCE NAME ADDRESS DATE Swenson Ski Goods DESCRIPTION Post DEBIT CREDIT TERMS BALANCE Sept. 23 Invoice 528 J CM 245 J n/30

20 PROBLEM 8.3A (continued) Big Elk Ski Shop Schedule of Accounts Payable September 30, Alaska Supply Company Cold Mountain Clothing Company Colorado Ski Shop Swenson Ski Goods Total The balance of the Accounts Payable control account is $12,530. Analyze: $5,600 + $4,000 + $2,250 + $2,600 = $14,450. The portion of purchases in September for clothing items is $14,450.

21 PROBLEM 8.4A GENERAL JOURNAL PAGE June 1 Purchases Cash Purchased merchandise, Check Purchases Accounts Payable/BioCenter Inc Purchased merchandise on account, 8 9 Invoice 606, terms 1/10, n/ Purchases Freight In Accounts Payable/New Concepts Corporation Purchased merchandise on account, Invoice 1011, terms 2/10, n/ Accounts Payable/BioCenter Inc Purchases Discounts ($1,200 x 1%) Cash ($1,200 - $12) Paid amount due to Invoice 606, Check Accounts Payable/New Concepts Corporation Purchases Returns and Allowances Received Credit Memorandum 227 for return of damaged merchandise Purchases Accounts Payable/BioCenter Inc Purchased merchandise on account, Invoice 612, terms 1/10, n/

22 PROBLEM 8.4A (continued) GENERAL JOURNAL PAGE June 14 Accounts Payable/New Concepts Corporation ($4,950 - $200) Purchases Discounts ($4,650 x 2%) Cash Paid amount owed on Invoice 1011, 5 6 Check Purchases ($8,200 - $1,230 = $6,970; $6,970 - $697 = $6,273) Accounts Payable/Park Research Purchased merchandise on account, Invoice 1029, terms n/ Purchases Cash Purchased merchandise, Check Cash Purchases Returns and Allowances Received cash for return of defective merchandise purchased June Purchases Freight In Accounts Payable/New Concepts Corporation Purchased merchandise on account, Invoice 1080, terms 2/10, n/ Analyze: The amount of trade discounts received on the June 15 purchase from Park Research was $1,927 (List price, $8,200, less purchase price, $6,273).

23 PROBLEM 8.5A GENERAL LEDGER ACCOUNT Cash ACCOUNT NO. BALANCE June 1 Balance J J J J J ACCOUNT Accounts Payable ACCOUNT NO. BALANCE June 3 J J J J J J J J ACCOUNT Purchases ACCOUNT NO. BALANCE June 1 J J J J J J J

24 PROBLEM 8.5A (continued) ACCOUNT Purchases Returns and Allowances ACCOUNT NO. 502 BALANCE June 10 J J ACCOUNT Purchases Discounts ACCOUNT NO. 503 BALANCE June 9 J J ACCOUNT Freight In ACCOUNT NO. 504 BALANCE DEBIT June 5 J J CREDIT

25 PROBLEM 8.5A (continued) NAME ADDRESS DATE ACCOUNTS PAYABLE SUBSIDIARY LEDGER BioCenter Inc. DESCRIPTION Post DEBIT CREDIT TERMS 1/10, n/30 BALANCE June 3 Invoice 606 J J Invoice 612 J NAME ADDRESS DATE New Concepts Corporation DESCRIPTION Post DEBIT CREDIT TERMS 2/10, n/30 BALANCE June 5 Invoice 1011 J CM 227 J J Invoice 1080 J NAME ADDRESS DATE Park Research DESCRIPTION Post DEBIT CREDIT TERMS BALANCE June 15 Invoice 1029 J n/30

26 PROBLEM 8.5A (continued) Maggiore Medical Devices Schedule of Accounts Payable June 30, BioCenter Inc New Concepts Corporation Park Research Total Analyze: The amount of merchandise returned to vendors by Maggiore Medical Devices in June was $380.

27 PROBLEM 8.6A Brown Company GENERAL JOURNAL PAGE Jan. 8 Accounts Payable/Smith, Inc Purchases Discounts Cash Paid amount owed on Invoice less cash discount, Check # Purchases Accounts Payable/Smith, Inc Purchased merchandise on account, Invoice 1920, terms 2/10, n/ Accounts Payable/Smith, Inc Purchases Returns and Allowances Received Credit Memorandum 320 for return of damaged merchandise, Invoice Accounts Payable/Smith, Inc. ($1,500 - $100) Purchases Discounts ($1,500 - $100) x 2% Cash Paid amount owed on Invoice less return of January 15, Check # Purchases Accounts Payable/Smith, Inc Purchased merchandise on account, Invoice 1950, terms 2/10, n/

28 PROBLEM 8.6A (continued) Smith, Inc. GENERAL JOURNAL PAGE Jan. 8 Sales Discounts Cash Accounts Receivable/Brown Company Received payment on Invoice 1885, 5 6 less sales discount Accounts Receivable/Brown Company Sales Sold merchandise on account, Invoice 1920, terms 2/10, n/ Sales Returns and Allowances Accounts Receivable/Brown Company Accepted return of damaged merchandise, Credit Memorandum 320; original sale made on Invoice 1920, January Sales Discounts Cash Accounts Receivable/Brown Company Received payment on Invoice 1920, less sale discount Accounts Receivable/Brown Company Sales Sold merchandise on account, Invoice 1950, 2/10, n/

29 PROBLEM 8.6A (continued) ACCOUNT Accounts Payable GENERAL LEDGER Brown Company ACCOUNT NO. Jan. 1 Balance J J J J J BALANCE NAME ACCOUNTS PAYABLE SUBSIDIARY LEDGER Brown Company Smith, Inc. TERMS 2/10, n/30 ADDRESS DATE Post BALANCE Jan. 1 Balance J J J J J

30 PROBLEM 8.6A (continued) GENERAL LEDGER Smith, Inc. ACCOUNT Accounts Receivable ACCOUNT NO. 111 BALANCE Jan. 1 Balance J J J J J NAME ACCOUNTS RECEIVABLE SUBSIDIARY LEDGER Smith, Inc. Brown Company TERMS ADDRESS DATE Post DEBIT CREDIT BALANCE Jan. 1 Balance J J J J J Analyze: The balance of the accounts payable for Smith, Inc. in the Brown Company accounts payable subsidiary ledger is $3,200. The balance of the accounts receivable for Brown Company in the Smith, Inc. accounts receivable subsidiary ledger is $3,200.

31 PROBLEM 8.1B GENERAL JOURNAL PAGE June 1 Purchases Freight In Accounts Payable/Mow Down Corporation Purchased lawn mowers on account, 5 6 Invoice 925, n/ Purchases Accounts Payable/Patio Furniture, Inc Purchased outdoor chairs and tables on account, Invoice 992, n/ Purchases Accounts Payable/Summer Lawn Center Purchased grass seed on account, Invoice 4001, n/ Purchases Cash Recorded various cash purchases for June Purchases Freight In Accounts Payable/Mason Industries Purchased sprinkler system on account, Invoice 9228, n/ Accounts Payable/Patio Furniture, Inc Cash Issued chk 104 for partial payment of Invoice Purchases Cash Recorded various cash purchases for June Accounts Payable/Mow Down Corporation Cash Issued chk 105 for full payment of Invoice

32 PROBLEM 8.1B (continued) ACCOUNT Cash GENERAL LEDGER ACCOUNT NO. June 1 Balance J J J J BALANCE ACCOUNT Accounts Payable ACCOUNT NO. June 1 J J J J J J BALANCE ACCOUNT Purchases ACCOUNT NO. June 1 J J J J J J BALANCE

33 PROBLEM 8.1B (continued) ACCOUNT Freight In GENERAL LEDGER ACCOUNT NO. June 1 J J BALANCE Analyze: The total freight costs incurred during June were $445.

34 PROBLEM 8.2B GENERAL JOURNAL PAGE April 2 Purchases Freight In Accounts Payable/Mailing and Packing Center Purchased copy paper on account, 5 6 Invoice 3772, n/ Purchases Accounts Payable/Special Occasion Cards Purchased gift cards on account, Invoice 9516, terms 1/10, n/ Accounts Payable/Mailing and Packing Center Purchases Returns and Allowances Received Credit Memorandum 155 for water-damaged copy paper purchased on April Purchases Accounts Payable/Specialty Cards Purchased novelty items on account, Invoice 4901, n/ Accounts Payable/Special Occasion Cards Purchases Discounts ($1,900 x 1%) Cash ($1,900 - $19) Paid amount due on Invoice 9516, Check Purchases Accounts Payable/Specialty Cards Purchased cards on account, Invoice 4921, n/

35 PROBLEM 8.2B (continued) GENERAL JOURNAL PAGE April 23 Purchases Freight In Accounts Payable/Business Forms, Inc Purchased forms on account, Invoice 2020, n/ Accounts Payable/Specialty Cards Purchases Returns and Allowances Received Credit Memorandum 225 for return of defective cards originally purchased on April Purchases Freight In Accounts Payable/Business Forms, Inc Purchased toner on account, Invoice 2029, n/ Accounts Payable/Mailing and Packing Center Cash ($2,410 - $200) Paid amount due on Invoice 3772 less return of April 9, Check Analyze: The cost per card was $1.50 ($ cards).

36 PROBLEM 8.3B GENERAL LEDGER ACCOUNT Cash ACCOUNT NO. April 1 Balance J J BALANCE ACCOUNT Accounts Payable ACCOUNT NO. April 2 J J J J J J J J J J BALANCE ACCOUNT Purchases ACCOUNT NO. April 2 J J J J J J BALANCE

37 PROBLEM 8.3B (continued) ACCOUNT Freight In ACCOUNT NO. 502 BALANCE April 2 J J J ACCOUNT Purchases Returns and Allowances ACCOUNT NO. 503 BALANCE April 9 J J ACCOUNT Purchases Discounts ACCOUNT NO. 504 BALANCE April 17 J

38 PROBLEM 8.3B (continued) NAME ADDRESS ACCOUNTS PAYABLE SUBSIDIARY LEDGER Business Forms, Inc. TERMS 1/10, n/30 BALANCE April 23 Invoice 2020 J Invoice 2029 J NAME ADDRESS DATE Mailing and Packing Center DESCRIPTION Post DEBIT CREDIT TERMS n/30 BALANCE April 2 Invoice 3772 J CM 155 J J NAME ADDRESS DATE Special Occasion Cards DESCRIPTION Post DEBIT CREDIT TERMS n/30 BALANCE April 8 Invoice 9516 J J NAME ADDRESS Specialty Cards TERMS n/30 BALANCE April 12 Invoice 4901 J Invoice 4921 J CM 225 J

39 PROBLEM 8.3B (continued) Tiffany s Card and Novelty Shop Schedule of Accounts Payable April 30, Business Forms, Inc Mailing and Packing Center Special Occasion Cards Specialty Cards Total The balance of the Accounts Payable control account is $6,825. Analyze: The amount of purchase discounts in April was $19.

40 PROBLEM 8.4B GENERAL JOURNAL PAGE Aug. 1 Purchases Cash Purchased merchandise, Check Purchases Accounts Payable/Brown Dental Corporation Purchased merchandise on account, 8 9 Invoice 866, terms 1/10, n/ Purchases Freight In Accounts Payable/Dental Concepts Purchased merchandise on account, Invoice 2111, terms 2/10, n/ Accounts Payable/Brown Dental Corporation Purchases Discounts ($2,200 x 1%) Cash ($2,200 - $22) Paid amount due on Invoice 866, Check Accounts Payable/Dental Concepts Purchases Returns and Allowances Received Credit Memorandum 272 for return of damaged merchandise purchased on August Purchases Accounts Payable/Brown Dental Corporation Purchased merchandise on account, Invoice 898, terms 1/10, n/

41 PROBLEM 8.4B (continued) GENERAL JOURNAL PAGE Aug. 14 Accounts Payable/Dental Concepts ($4,000 - $300) Purchases Discounts ($3,600 x 2%) Cash Paid amount owed on Invoice 2111, less 5 6 return of August 10, Check Purchases Accounts Payable/Surgical Supplies Purchased merchandise on account, Invoice 1902, terms n/ $4,000 - ($4,000 x 20%) = $3, $3,200 - ($3,200 x 10%) = $2, Purchases Cash Purchased merchandise, Check Cash Purchases Returns and Allowances Received cash for return of defective merchandise purchased August Purchases Freight In Accounts Payable/Dental Concepts Purchased merchandise on account, Invoice 2285, terms 2/10, n/ Analyze: 2.5% ($100 $4,000).

42 PROBLEM 8.5B ACCOUNT Cash GENERAL LEDGER ACCOUNT NO. Aug. 1 Balance J J J J J BALANCE ACCOUNT Accounts Payable ACCOUNT NO. Aug. 2 J J J J J J J J BALANCE ACCOUNT Purchases ACCOUNT NO. Aug. 1 J J J J J J J BALANCE

43 PROBLEM 8.5B (continued) ACCOUNT Purchases Returns and Allowances ACCOUNT NO. 502 BALANCE Aug. 10 J J ACCOUNT Purchases Discounts ACCOUNT NO. 503 BALANCE Aug. 10 J J ACCOUNT Freight In ACCOUNT NO. 504 BALANCE Aug. 5 J J

44 PROBLEM 8.5B (continued) NAME ADDRESS ACCOUNTS PAYABLE SUBSIDIARY LEDGER Brown Dental Corporation TERMS 1/10, n/30 BALANCE Aug. 2 Invoice 866 J J Invoice 898 J NAME ADDRESS Dental Concepts DEBIT CREDIT TERMS 2/10, n/30 BALANCE Aug. 5 Invoice 2111 J CM 272 J J Invoice 2285 J NAME ADDRESS DATE Surgical Supplies DESCRIPTION Post DEBIT CREDIT TERMS n/30 BALANCE Aug. 15 Invoice 1902 J

45 PROBLEM 8.5B (continued) Dental Supplies, Inc. Schedule of Accounts Payable August 31, Brown Dental Corporation Dental Concepts Surgical Supplies Total Analyze: On August 31, Dental Supplies, Inc. owes Dental Concepts $2,200.

46 PROBLEM 8.6B Banh Company GENERAL JOURNAL PAGE Feb. 8 Accounts Payable/Santoni, Inc Purchases Discounts Cash Paid amount owed on Invoice 1985, less 5 6 cash discount, Check Purchases Accounts Payable/Santoni, Inc Purchased merchandise on account, Invoice 1990, terms 2/10, n/ Accounts Payable/Santoni, Inc Purchases Returns and Allowances Received Credit Memorandum 220 for return of damaged merchandise, Invoice Accounts Payable/Santoni, Inc. ($3,800 - $400) Purchases Discounts ($3,400 x 2%) Cash ($3,400 - $68) Paid amount owed on Invoice 1990, less return of February 15, Check Purchases Accounts Payable/Santoni, Inc Purchased merchandise on account, Invoice 2008, terms 2/10, n/

47 PROBLEM 8.6B (continued) Santoni, Inc. GENERAL JOURNAL PAGE Feb. 8 Sales Discounts Cash Accounts Receivable/Banh Company Received payment for Invoice 1985, 5 6 less sales discount Accounts Receivable/Banh Company Sales Sold merchandise on account, Invoice 1990, 2/10, n/ Sales Returns and Allowances Accounts Receivable/Banh Company Accepted return for damaged merchandise, Credit Memorandum 220; original sale made on Invoice 1990, February Sales Discounts ($3,800 - $400) x 2% Cash Accounts Receivable/Banh Company Received payment for Invoice 1990, less sale discount Accounts Receivable/Banh Company Sales Sold merchandise on account, Invoice 2008, /10, n/

48 PROBLEM 8.6B (continued) ACCOUNT Accounts Payable GENERAL LEDGER Banh Company ACCOUNT NO. Jan. 1 Balance J J J J J BALANCE NAME ADDRESS ACCOUNTS PAYABLE SUBSIDIARY LEDGER Banh Company Santoni, Inc. TERMS 2/10, n/30 DATE Post BALANCE Jan. 1 Balance J Invoice 1990 J CM 220 J J Invoice 2008 J

49 PROBLEM 8.6B (continued) ACCOUNT Accounts Receivable GENERAL LEDGER Santoni, Inc ACCOUNT NO. BALANCE Jan. 1 Balance J J J J J ACCOUNTS RECEIVABLE SUBSIDIARY LEDGER Santoni, Inc. NAME Banh Company ADDRESS DATE Post BALANCE Jan. 1 Balance J J J J J Analyze: The balance of the accounts payable for Santoni, Inc. in the Banh Company accounts payable subsidiary ledger is $6,200. The balance of the accounts receivable for Banh Company in the Santoni, Inc. accounts receivable subsidiary ledger is $6,200.

50 CRITICAL THINKING PROBLEM 8.1 GENERAL JOURNAL PAGE Jan. 1 Cash Supplies William Evans, Capital Original investments by owner Accounts Receivable/Chu Corporation Sales Sold merchandise on account, Invoice 1001, 9 10 terms 2/10, n/ Purchases Accounts Payable/Whitson Company Purchased merchandise on account, Invoice 1125, terms 1/10, n/ Freight In Cash Paid freight charges related to purchase of January Sales Returns and Allowances Accounts Receivable/Chu Corporation Issued Credit Memorandum 101 for return of merchandise Sales Discounts ($750 - $100 = $650; $650 x 2% = $13) Cash ($750 - $100 - $13) Accounts Receivable/Chu Corporation ($750 - $100) Received payment for invoice Accounts Payable/Whitson Company Purchases Discounts ($1,600 x 1%) Cash ($1,600 - $16) Paid amount owed on Invoice 1125, Check

51 CRITICAL THINKING PROBLEM 8.1 (continued) GENERAL JOURNAL PAGE Jan. 15 Cash Sales Recorded cash sales, January Credit Card Expense ($1,200 x 3%) Cash ($1,200 - $36) Sales Recorded sales to customers using bank credit 9 10 cards, January Wages Expense Cash Paid wages, Check Equipment Cash Purchased equipment, Check Equipment Cash Paid freight for equipment purchase of January 16, Check Purchases ($4,000 - $800) Accounts Payable/Terri Manufacturing Purchased merchandise on account, Invoice 2078, terms 1/10, n/ Accounts Receivable/Moloney Corp Sales Sold merchandise on account, Invoice 1002, terms 1/10, n/

52 CRITICAL THINKING PROBLEM 8.1 (continued) GENERAL JOURNAL PAGE Jan. 21 Purchases Freight In Accounts Payable/Schmidt Company Purchased merchandise on account, 5 6 Invoice 3204, terms 1/10, n/ Accounts Payable/Terri Manufacturing Purchases Discounts ($3,200 x 1%) Cash ($3,200 - $32) Paid amount owed on Invoice 2078, Check Sales Discounts ($2,500 x 1%) Cash ($2,500 - $25) Accounts Receivable/Moloney Corp Received payment for Invoice Accounts Payable/Schmidt Company Purchases Discounts ($3,000 x 1%) Cash Paid amount due on Invoice 3204, Check Cash Sales Recorded cash sales, January Credit Card Expense ($2,200 x 3%) Cash ($2,200 - $66) Sales Recorded sales to customers using bank credit cards, January

53 CRITICAL THINKING PROBLEM 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 merchandies. 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 occuring 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 d. Require b ithe purchase d i diorder l 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.

54 SOLUTIONS TO 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. Ensure 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 should find 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 out of net income for this company. When Anait finds how easy it is to perpetrate this fraud, she will create more vendors and more invoices. To prevent these actions, the controller should require each new vendor to receive his/her approval. The procedure to only view the checks over $100 can still be maintained with this one approval process. Financial Statement Analysis: : 66.1%. 2009: 66.3% 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. Teamwork: The most advantageous would be net 45 days to pay the vendors, with customers on terms of 2/10 net 30. Your customers would then be paying you before you need to pay vendors. 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 of purchase requisition.

55 Part A True-False 1. TRUE 8. FALSE 15. FALSE 2. TRUE 9. TRUE 16. TRUE 3. FALSE 10. TRUE 17. FALSE 4. FALSE 11. FALSE 18. FALSE 5. TRUE 12. FALSE 19. TRUE 6. TRUE 13. FALSE 20. TRUE 7. FALSE 14. TRUE SOLUTIONS TO PRACTICE TEST Part B Exercises 1. $2, $2, $3, $2, $2,773.50