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 2002. 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 (www.federated-fds.com) 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
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 8.1
1. Purchases Journal 2. General Journal
3. Cash Payments Journal 4. Purchases Journal 5. General Journal
6. Cash Payments Journal Exercise 8.2
Dr. Cr.
1. 501 205
2. 205 503
3. 205 101
4. 501, 502 205
5. 205 503
6. 501 101
Exercise 8.3
PURCHASES JOURNAL PAGE 6
Accounts Freight
Invoice Inv. Post. Payable Purchases in
Date Purchased From Number Date Terms Ref. Credit Debit Debit
2007
July 1 Auto Parts Corp. 6812 6/27 n/30 2,078 1,950 128
3 Aplex Company 441 6/30 1/10, n/60 3,200 3,120 80
5 The Custom Sounds Shop, Inc. 5601 7/1 2/10, n/30 2,550 2,450 100 10 Specialty Tire Company 1102 7/8 2/10, n/30 4,250 4,250
Exercise 8.4
GENERAL JOURNAL PAGE 10
Post.
Date Description Ref. Debit Credit
2007
Feb. 9 Accounts Payable/Discount Appliance Corporation . . . . 3,920
Purchases Returns & Allowances . . . 3,920 Received CM 244 for damaged merchandise that
was returned; original purchase made on Inv. 4101, January 3, 2007
Exercise 8.5
GENERAL JOURNAL PAGE
Post.
Date Description Ref. Debit Credit
2007
Mar. 17 Accounts Payable/Town Appliance Mart . . . 1,000
Purchases Returns & Allowances . . . 1,000 Received CM 112 for damages merchandise;
original purchase made on Inv. 911, February 20, 2007
Exercise 8.6
Purchases . . . $42,840 Freight In . . . 2,076 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 $100,650
Problems
Problem 8.1A
PURCHASES JOURNAL PAGE 14
Accounts Freight
Invoice Inv. Post. Payable Purchases in
Date Purchased From Number Date Terms Ref. Credit Debit Debit
2007
June 1 Jones Company 4241 5/27 n/60 ✓ 2,175 1,995 180
8 Camera & Films Products 1102 6/3 n/45 ✓ 1,390 1,390 12 The Optical Supply Store 7282 6/9 1/10, n/60 ✓ 906 906
20 Camera & Films Products 1148 6/15 n/45 ✓ 1,125 1,050 75
23 Chicago Case Company 3108 6/18 n/45 ✓ 1,940 1,940
28 Zant Corporation 5027 6/24 2/10, n/30 ✓ 2,590 2,470 120
30 Totals 10,126 9,751 375
(205) (501) (502)
GENERAL JOURNAL PAGE 38
Post.
Date Description Ref. Debit Credit
2007
June 18 Accounts Payable/Jones Company . . . 205/✓ 375
Purchase Returns & Allowances . . . 503 375 Received CM 110 for defective cameras that
were returned; original purchase made on Inv. 4241, May 27, 2007
30 Accounts Payable/Chicago Case Company . . . 205/✓ 240
Purchase Returns & Allowances . . . 503 240 Received CM 1108 for allowance for damaged
merchandise, original purchase made on Inv. 3108, June 18, 2007
GENERAL LEDGER
ACCOUNT Accounts Payable ACCOUNT NO. 205
Post. Balance
Date Description Ref. Debit Credit Debit Credit
2007
June 1 Balance ✓ 13,904
18 J38 375 13,529
30 J38 240 13,289
30 P14 10,126 23,415
ACCOUNT Purchases ACCOUNT NO. 501
Post. Balance
Date Description Ref. Debit Credit Debit Credit
2007
June 30 P14 9,751 9,751
ACCOUNT Freight In ACCOUNT NO. 502
Post. Balance
Date Description Ref. Debit Credit Debit Credit
2007
June 30 P14 375 375
ACCOUNT Purchases Returns and Allowances ACCOUNT NO. 503
Post. Balance
Date Description Ref. Debit Credit Debit Credit
2007
June 18 J38 375 375
30 J38 240 615
Purchases . . . $9,751 Freight In . . . 375 Delivered Cost of Purchases . . . $10,126 Less Purchases Returns & Allowances . . . 615 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
Post.
Date Description Ref. Debit Credit Balance
2007
June 1 Balance ✓ 10,480
8 Invoice 1102, 6/3/07 P14 1,390 11,870
ACCOUNTS PAYABLE SUBSIDIARY LEDGER
NAME Chicago Case Company TERMS n/45
Post.
Date Description Ref. Debit Credit Balance
2007
June 1 Balance ✓ 1,200
23 Invoice 3108, 6/18/07 P14 1,940 3,140
30 CM 1108 J38 240 2,900
NAME Jones Company TERMS n/60
Post.
Date Description Ref. Debit Credit Balance
2007
June 1 Invoice 4241, 5/27/07 P14 2,175 2,175
18 CM 110 J38 375 1,800
NAME The Optical Supply Store TERMS 1/10, n/60
Post.
Date Description Ref. Debit Credit Balance
2007
June 1 Balance ✓ 2,224
12 Invoice 7282, 6/9/07 P14 906 3,130
NAME Zant Corporation TERMS 2/10, n/30
Post.
Date Description Ref. Debit Credit Balance
2007
June 28 Invoice 5027, 6/24/07 P14 2,590 2,590
PHOTO MART
Schedule of Accounts Payable June 30, 2007
Camera & Films Products . . . 12,995 Chicago Case Company . . . 2,900 Jones Company . . . 1,800 The Optical Supply Store . . . 3,130 Zant Corporation . . . 2,590 Total . . . 23,415
Analyze: The balance owed to The Optical Supply Store on June 30 is $3,130.
Problem 8.3A
PURCHASES JOURNAL PAGE 8
Accounts Freight
Invoice Inv. Post. Payable Purchases in
Date Purchased From Number Date Terms Ref. Credit Debit Debit
2007
July 1 Brown Corporation 1011 6/26 n/60 ✓ 5,220 4,700 520
5 Brooks Garden Furniture Co. 639 7/2 n/45 ✓ 4,922 4,370 552
9 Lawn & Garden Supply 8164 7/5 n/30 ✓ 950 950
19 Lawn & Garden Supply 9050 7/15 n/30 ✓ 1,456 1,200 256 21 Cameron Rubber Company 1785 7/17 1/15, n/60 ✓ 3,904 3,680 224 31 Wilson Industrial Products 8985 7/26 2/10, n/30 ✓ 23,440 22,800 640
31 39,892 37,700 2,192
(205) (501) (502)
GENERAL JOURNAL PAGE 20
Post.
Date Description Ref. Debit Credit
2007
July 16 Accounts Payable/Brooks Garden Furniture Company . 205/✓ 600
Purchases Returns & Allowances . . . 503 600 Received CM 110 for allowance for damaged
merchandise; original purchase made on Inv. 639, July 2
28 Accounts Payable/Cameron Rubber Company . . . 205/✓ 800
Purchases Returns & Allowances . . . 503 800 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
Post. Balance
Date Description Ref. Debit Credit Debit Credit
2007
July 1 Balance ✓ 35,880
16 J20 600 35,280
28 J20 800 34,480
31 P8 39,892 74,372
ACCOUNT Purchases ACCOUNT NO. 501
Post. Balance
Date Description Ref. Debit Credit Debit Credit
2007
July 31 P8 37,700 37,700
GENERAL LEDGER
ACCOUNT Freight In ACCOUNT NO. 502
Post. Balance
Date Description Ref. Debit Credit Debit Credit
2007
July 31 P8 2,192 2,192
ACCOUNT Purchases Returns & Allowances ACCOUNT NO. 503
Post. Balance
Date Description Ref. Debit Credit Debit Credit
2007
July 16 J20 600 600
28 J20 800 1,400
Purchases . . . $37,700 Freight In . . . 2,192 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
Post.
Date Description Ref. Debit Credit Balance
2007
July 1 Balance ✓ 11,120
5 Invoice 639, 7/2/07 P8 4,922 16,042
16 CM 110 J20 600 15,442
NAME Brown Corporation TERMS n/60
Post.
Date Description Ref. Debit Credit Balance
2007
July 1 Balance ✓ 18,120
1 Invoice 1011, 6/26/07 P8 5,220 23,340
NAME Cameron Rubber Company TERMS 1/15, n/60
Post.
Date Description Ref. Debit Credit Balance
2007
July 21 Invoice 1785, 7/17/07 P8 3,904 3,904
28 CM 223 J20 800 3,104
ACCOUNTS PAYABLE SUBSIDIARY LEDGER
NAME Lawn & Garden Supply TERMS n/30
Post.
Date Description Ref. Debit Credit Balance
2007
July 1 Balance ✓ 6,640
9 Invoice 8164, 7/5/07 P8 950 7,590
19 Invoice 9050, 7/15/07 P8 1,456 9,046
NAME Wilson Industrial Products TERMS 2/10, n/30
Post.
Date Description Ref. Debit Credit Balance
2007
July 31 Invoice 8985, 7/26/07 P8 23,440 23,440
THE PATIO SHOP Schedule of Accounts Payable
July 31, 2007
Brooks Garden Furniture Company . . . 15,442 Brown Corporation . . . 23,340 Cameron Rubber Company . . . 3,104 Lawn and Garden Supply . . . 9,046 Wilson Industrial Products . . . 23,440 Total . . . 74,372
Analyze: Total freight charges for the month of July were $2,192.
Problem 8.4A
PURCHASES JOURNAL PAGE 5
Accounts Freight
Invoice Inv. Post. Payable Purchases in
Date Purchased From Number Date Terms Ref. Credit Debit Debit
2007
Sept. 3 Dalton Office Furniture Co. 4213 8/29 n/30 ✓ 8,132 7,920 212 7 Apex Office Machines, Inc. 9217 9/2 n/60 ✓ 11,300 11,300
16 Davis Corporation 8066 9/11 n/30 ✓ 2,680 2,556 124
20 Apex Office Machines, Inc. 11011 9/15 n/60 ✓ 1,000 1,000
23 Brown Paper Company 6498 9/18 1/10, n/30 ✓ 7,600 7,500 100 30 Zenn Furniture, Inc. 696 9/25 2/10, n/30 ✓ 4,000 3,840 160
30 34,712 34,116 596
(205) (501) (502)
GENERAL JOURNAL PAGE 14 Post.
Date Description Ref. Debit Credit
2007
Sept. 10 Accounts Payable/Dalton Office Furniture Co. . . . 205/✓ 600
Purchases Returns & Allowances . . . 503 600 Received CM 511 for allowance for damaged
merchandise; original purchase made on Inv. 4213, August 29
28 Accounts Payable/Apex Office Machines, Inc. . . . 205/✓ 880
Purchases Returns & Allowances . . . 503 880 Received CM 312 for damaged merchandise
that was returned; original purchase made on Inv. 11011, September 15
GENERAL LEDGER
ACCOUNT Accounts Payable ACCOUNT NO. 205
Post. Balance
Date Description Ref. Debit Credit Debit Credit
2007
Sept. 1 Balance ✓ 28,256
10 J14 600 27,656
28 J14 880 26,776
30 P5 34,712 61,488
ACCOUNT Purchases ACCOUNT NO. 501
Post. Balance
Date Description Ref. Debit Credit Debit Credit
2007
Sept. 30 P5 34,116 34,116
ACCOUNT Freight In ACCOUNT NO. 502
Post. Balance
Date Description Ref. Debit Credit Debit Credit
2007
Sept. 30 P5 596 596
ACCOUNT Purchases Returns and Allowances ACCOUNT NO. 503
Post. Balance
Date Description Ref. Debit Credit Debit Credit
2007
Sept. 10 J14 600 600
28 J14 880 1,480
Net Delivered Cost of Purchases
Purchases . . . $34,116 Freight in . . . 596 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
Post.
Date Description Ref. Debit Credit Balance
2007
Sept. 1 Balance ✓ 10,960
7 Invoice 9217, 9/2/07 P5 11,300 22,260
20 Invoice 11011, 9/15/07 P5 1,000 23,260
28 CM 312 J14 880 22,380
NAME Brown Paper Company TERMS 1/10, n/30
Post.
Date Description Ref. Debit Credit Balance
2007
Sept. 1 Balance ✓ 2,120
23 Invoice 6498, 9/18/07 P5 7,600 9,720
NAME Dalton Office Furniture Company TERMS n/30
Post.
Date Description Ref. Debit Credit Balance
2007
Sept. 1 Balance ✓ 9,576
3 Invoice 4213, 8/29/07 P5 8,132 17,708
10 CM 511 J14 600 17,108
NAME Davis Corporation TERMS n/30
Post.
Date Description Ref. Debit Credit Balance
2007
Sept. 16 Invoice 8066, 9/11/07 P5 2,680 2,680
NAME Zenn Furniture, Inc. TERMS 2/10, n/30
Post.
Date Description Ref. Debit Credit Balance
2007
Sept. 1 Balance ✓ 5,600
30 Invoice 696, 9/25/07 P5 4,000 9,600
PROFESSIONAL OFFICE PRODUCTS CENTER Schedule of Accounts Payable
September 30, 2007
Apex Office Machines, Inc. . . . 22,380 Brown Paper Company . . . 9,720 Dalton Office Furniture Company . . . 17,108 Davis Corporation . . . 2,680 Zenn Furniture, Inc. . . . 9,600 Total . . . 61,488
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. Post. Payable Purchases in
Date Purchased From Number Date Terms Ref. Credit Debit Debit
2007
May 1 Colorado Shop for Skiers 6572 4/28 n/45 ✓ 6,820 6,600 220 8 Alaska Supply Company 4916 5/2 n/30 ✓ 11,100 11,100
12 Barrons Winter Fashions 986 5/11 n/60 ✓ 5,000 5,000
16 Alaska Supply Company 5011 5/15 n/30 ✓ 3,160 3,160
22 Cold Mountain Clothing Company 4019 5/16 1/10, n/60 ✓ 2,240 2,240
31 Taylor Ski Goods 8354 5/27 2/10, n/30 ✓ 3,400 3,300 100
31 31,720 31,400 320
(205) (501) (502)
GENERAL JOURNAL PAGE 38
Post.
Date Description Ref. Debit Credit
2007
May 9 Accounts Payable/Colorado Shop for Skiers . . . 205/✓ 1,600
Purchases Returns and Allowances . . . 503 1,600 Received Credit Memo 155 for damaged ski boots
that were returned; original sale made on Inv. 6572, April 28, 2007
28 Accounts Payable/Alaska Supply Company . . . 205/✓ 420
Purchases Returns and Allowances . . . 503 420 Received Credit Memo 38 for defective ski poles
that were returned; original purchase made on Inv. 5011, May 15, 2007
GENERAL LEDGER
ACCOUNT Accounts Payable ACCOUNT NO. 205
Post. Balance
Date Description Ref. Debit Credit Debit Credit
2007
May 1 Balance ✓ 21,608
9 J38 1,600 20,008
28 J38 420 19,588
31 J15 31,720 51,308
ACCOUNT Purchases ACCOUNT NO. 501
Post. Balance
Date Description Ref. Debit Credit Debit Credit
2007
May 31 P15 31,400 31,400
ACCOUNT Freight In ACCOUNT NO. 502
Post. Balance
Date Description Ref. Debit Credit Debit Credit
2007
May 31 P15 320 320
ACCOUNT Purchases Returns and Allowances ACCOUNT NO. 503
Post. Balance
Date Description Ref. Debit Credit Debit Credit
2007
May 9 J38 1,600 1,600
28 J38 420 2,020
Purchases . . . $31,400 Freight In . . . 320 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.
Problem 8.2B
ACCOUNTS PAYABLE SUBSIDIARY LEDGER
NAME Alaska Supply Company TERMS n/30
Post.
Date Description Ref. Debit Credit Balance
2007
May 1 Balance ✓ 1,700
8 Invoice 4916, 5/2/07 P15 11,100 12,800
16 Invoice 5011, 5/15/07 P15 3,160 15,960
28 CM 38 J38 420 15,540
NAME Barrons Winter Fashions, Inc. TERMS n/60
Post.
Date Description Ref. Debit Credit Balance
2007
May 1 Balance ✓ 8,720
12 Invoice 986, 5/11/07 P15 5,000 13,720
NAME Cold Mountain Clothing Company TERMS 1/10, n/60
Post.
Date Description Ref. Debit Credit Balance
2007
May 1 Balance ✓ 5,000
22 Invoice 4019, 5/16/07 P15 2,240 7,240
NAME Colorado Shop for Skiers TERMS n/45
Post.
Date Description Ref. Debit Credit Balance
2007
May 1 Balance ✓ 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
Post.
Date Description Ref. Debit Credit Balance
2007
May 31 Invoice 8354, 5/27/07 P15 3,400 3,400
DENVER SKI SHOP Schedule of Accounts Payable
May 31, 2007
Alaska Supply Company . . . 15,540 Barrons Winter Fashions, Inc. . . . 13,720 Cold Mountain Clothing Company . . . 7,240 Colorado Shop for Skiers . . . 11,408 Taylor Ski Goods . . . 3,400 Total . . . 51,308
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. Post. Payable Purchases in
Date Purchased From Number Date Terms Ref. Credit Debit Debit
2007
Dec. 1 Selby Corporation 2110 11/26 n/45 ✓ 5,936 5,780 156
5 Patio Furniture Shop 633 12/2 1/15, n/60 ✓ 5,800 5,700 100
9 Spring Lawn Center 1127 12/4 n/30 ✓ 1,148 1,148
19 Spring Lawn Center 5731 12/15 n/30 ✓ 1,756 1,600 156
21 Delta Rubber Company 8517 12/17 n/60 ✓ 836 760 76
31 Cason Industries 8819 12/26 2/10, n/30 ✓ 3,780 3,700 80
31 19,256 18,688 568
(205) (501) (502)
GENERAL JOURNAL PAGE 20
Post.
Date Description Ref. Debit Credit
2007
Dec. 16 Accounts Payable/Patio Furniture Shop . . . 205/✓ 400
Purchases Returns and Allowances . . . 503 400 Received Credit Memo 101 for allowance for
damaged merchandise; original purchase made on Inv. 633, Dec. 2
28 Accounts Payable/Delta Rubber Company . . . 205/✓ 150
Purchases Returns and Allowances . . . 503 150 Received Credit Memo 210 for damaged
merchandise that was returned; original purchase made on Inv. 8517, Dec. 17
GENERAL LEDGER
ACCOUNT Accounts Payable ACCOUNT NO. 205
Post. Balance
Date Description Ref. Debit Credit Debit Credit
2007
Dec. 1 Balance ✓ 13,490
16 J20 400 13,090
28 J20 150 12,940
31 P8 19,256 32,196
ACCOUNT Purchases ACCOUNT NO. 501
Post. Balance
Date Description Ref. Debit Credit Debit Credit
2007
Dec. 31 P8 18,688 18,688
ACCOUNT Freight In ACCOUNT NO. 502
Post. Balance
Date Description Ref. Debit Credit Debit Credit
2007
Dec. 31 P8 568 568
ACCOUNT Purchases Returns and Allowances ACCOUNT NO. 503
Post. Balance
Date Description Ref. Debit Credit Debit Credit
2007
Dec. 16 J20 400 400
28 J20 150 550
Purchases . . . $18,688 Freight In . . . 568 Delivered Cost of Purchases . . . $19,256 Less Purchases Returns and Allowances . 550 Net Delivered Cost of Purchases . . . $18,706
ACCOUNTS PAYABLE SUBSIDIARY LEDGER
NAME Cason Industries TERMS 2/10, n/30
Post.
Date Description Ref. Debit Credit Balance
2007
Dec. 1 Balance ✓ 2,150
31 Invoice 8819, 12/26/07 P8 3,780 5,930
NAME Delta Rubber Company TERMS n/60
Post.
Date Description Ref. Debit Credit Balance
2007
Dec. 1 Balance ✓ 3,850
21 Invoice 8517, 12/17/07 P8 836 4,686
28 CM 210 J20 150 4,536
NAME Patio Furniture Shop TERMS 1/15, n/60
Post.
Date Description Ref. Debit Credit Balance
2007
Dec. 5 Invoice 633, 12/2/07 P8 5,800 5,800
16 CM 101 J20 400 5,400
NAME Selby Corporation TERMS n/45
Post.
Date Description Ref. Debit Credit Balance
2007
Dec. 1 Balance ✓ 4,842
1 Invoice 2110, 11/26/07 P8 5,936 10,778
NAME Spring Lawn Center TERMS n/30
Post.
Date Description Ref. Debit Credit Balance
2007
Dec. 1 Balance ✓ 2,648
9 Invoice 1127, 12/4/07 P8 1,148 3,796
19 Invoice 5731, 12/15/07 P8 1,756 5,552
LANDSCAPE SUPPLY CENTER Schedule of Accounts Payable
December 31, 2007
Cason Industries . . . 5,930 Delta Rubber Company . . . 4,536 Patio Furniture Shop . . . 5,400 Selby Corporation . . . 10,778 Spring Lawn Center . . . 5,552 Total . . . 32,196
Analyze: Accounts Payable increased by $18,706 during the month of December.
Problem 8.4B
PURCHASES JOURNAL PAGE 4
Accounts Freight
Invoice Inv. Post. Payable Purchases in
Date Purchased From Number Date Terms Ref. Credit Debit Debit
2007
Feb. 5 Packing & Mailing Supply Center, Inc. 502 2/2 2/10, n/30 ✓ 2,100 2,000 100 8 Gifts & Holiday Cards 2808 2/5 2/10, n/30 ✓ 1,900 1,900
12 Gifts & Holiday Cards 2904 2/8 2/10, n/30 ✓ 1,200 1,200 13 Specialty Business Cards 2013 2/9 1/10, n/45 ✓ 1,100 1,100
19 Business Forms, Inc. 2019 2/16 n/30 ✓ 2,040 1,980 60
21 Specialty Business Cards 1376 2/19 1/10, n/45 ✓ 3,710 3,600 110
28 12,050 11,780 270
(203) (501) (502)
GENERAL JOURNAL PAGE 12
Post.
Date Description Ref. Debit Credit
2007
Feb. 20 Accounts Payable/Gift & Holiday Cards . . . 203/✓ 200
Purchases Returns and Allowances . . . 503 200 Received Credit Memo 102 for damaged
merchandise; original purchase made on Inv.
2808, dated February 5
27 Accounts Payable/Gift & Holiday Cards . . . 203/✓ 240
Purchases Returns and Allowances . . . 503 240 Received Credit Memo 118 for damaged
merchandise; original purchase made on Inv.
2904, February 12
GENERAL LEDGER
ACCOUNT Accounts Payable ACCOUNT NO. 203
Post. Balance
Date Description Ref. Debit Credit Debit Credit
2007
Feb. 1 Balance ✓ 15,200
20 J12 200 15,000
27 J12 240 14,760
28 P4 12,050 26,810
ACCOUNT Purchases ACCOUNT NO. 501
Post. Balance
Date Description Ref. Debit Credit Debit Credit
2007
Feb. 28 P4 11,780 11,780
ACCOUNT Freight In ACCOUNT NO. 502
Post. Balance
Date Description Ref. Debit Credit Debit Credit
2007
Feb. 28 P4 270 270
ACCOUNT Purchases Returns and Allowances ACCOUNT NO. 503
Post. Balance
Date Description Ref. Debit Credit Debit Credit
2007
Feb. 20 J12 200 200
27 J12 240 440
Net Delivered Cost of Purchases
Purchases . . . $11,780 Freight In . . . 270 Delivered Cost of Purchases . . . $12,050 Less Purchases Returns and Allowances . 440 Net Delivered Cost of Purchases . . . $11,610
ACCOUNTS PAYABLE SUBSIDIARY LEDGER
NAME Business Forms, Inc. TERMS n/30
Post.
Date Description Ref. Debit Credit Balance
2007
Feb. 1 Balance ✓ 8,000
19 Invoice 2019, 2/16/07 2,040 10,040
NAME Gifts & Holiday Cards TERMS 2/10, n/30
Post.
Date Description Ref. Debit Credit Balance
2007
Feb. 1 Balance ✓ 4,000
8 Invoice 2808, 2/5/07 P4 1,900 5,900
12 Invoice 2904, 2/8/07 P4 1,200 7,100
20 CM 102 J12 200 6,900
27 CM 118 J12 240 6,660
NAME Packing & Mailing Supply Center, Inc. TERMS 2/10, n/30 Post.
Date Description Ref. Debit Credit Balance
2007
Feb. 1 Balance ✓ 3,200
5 Invoice 502, 2/2/07 P4 2,100 5,300
NAME Specialty Business Cards TERMS 1/10, n/45
Post.
Date Description Ref. Debit Credit Balance
2007
Feb. 13 Invoice 2013, 2/9/07 P4 1,100 1,100
21 Invoice 1376, 2/19/07 P4 3,710 4,810
SIMPSON’S CARDS & NOVELTY SHOP Schedule of Accounts Payable
February 28, 2007
Business Forms, Inc. . . . 10,040 Gifts & Holiday Cards . . . 6,660 Packing & Mailing Supply Center, Inc. . . . . 5,300 Specialty Business Cards . . . 4,810 Total . . . 26,810
Analyze: Total freight charges for the month of February were $270. This represents 2.24% of delivered cost of purchases.
Challenge Problem
PURCHASES JOURNAL PAGE 6
Accounts Freight
Invoice Inv. Post. Payable Purchases in
Date Purchased From Number Date Terms Ref. Credit Debit Debit
2007
Jan. 3 Fashion Center 101 12/26 n/30 ✓ 5,112 5,000 112
5 Handbag Depot 223 12/28 2/10, n/30 ✓ 3,569 3,480 89
7 House of Styles, Inc. 556 1/3 2/10, n/30 ✓ 3,968 3,900 68 9 Modern Woman Pants &
Suits Company 110 1/5 n/30 ✓ 2,360 2,360
12 International Executive 104 1/9 2/10, n/30 ✓ 5,529 5,400 129
18 Mr. John’s Shoes 118 1/14 n/60 ✓ 3,200 3,120 80
25 Hosiery Warehouse 1012 1/20 2/10, n/30 ✓ 900 900
29 Modern Woman Pants &
Suits Company 315 1/26 n/30 ✓ 1,600 1,600
31 Special Occasion Wholesale
Dress Shop 1044 1/27 2/10, n/30 ✓ 5,475 5,250 225
31 31,713 31,010 703
(205) (501) (502)
SALES JOURNAL PAGE 1
Accounts Sales Tax
Sales Slip Post. Receivable Payable Sales
Date No. Customer’s Name Ref. Debit Credit Credit
2007
Jan. 4 101 Sarah Valdez . . . ✓ 864 64 800
5 102 Linda Carter . . . ✓ 432 32 400
6 103 Teresa Collins . . . ✓ 432 32 400
10 104 Demetria Davis . . . ✓ 648 48 600
14 105 Jeraldine Wells . . . ✓ 540 40 500
17 106 Amalia Rodrigez . . . ✓ 864 64 800
21 107 Rosabla Vasquez . . . ✓ 2,160 160 2,000
24 108 Sherrye Samuels . . . ✓ 432 32 400
25 109 Cecila Lin . . . ✓ 324 24 300
29 110 Tonya Ennis . . . ✓ 648 48 600
31 111 Isabel James . . . ✓ 810 60 750
8,154 604 7,550
(111) (231) (401)
ACCOUNTS PAYABLE SUBSIDIARY LEDGER
NAME Fashion Center TERMS n/30
Post.
Date Description Ref. Debit Credit Balance
2007
Jan. 3 Invoice 101, 12/26/06 P6 5,112 5,112
NAME Handbag Depot TERMS 2/10, n/30
Post.
Date Description Ref. Debit Credit Balance
2007
Jan. 5 Invoice 223, 12/28/06 P6 3,569 3,569
NAME Hosiery Warehouse TERMS 2/10, n/30
Post.
Date Description Ref. Debit Credit Balance
2007
Jan. 25 Invoice 1012, 1/20/07 P6 900 900
NAME House of Styles, Inc. TERMS 2/10, n/30
Post.
Date Description Ref. Debit Credit Balance
2007
Jan. 7 Invoice 556, 1/3/07 P6 3,968 3,968
NAME International Executive TERMS 2/10, n/30
Post.
Date Description Ref. Debit Credit Balance
2007
Jan. 12 Invoice 104, 1/9/07 P6 5,529 5,529
NAME Modern Woman Pants & Suits Company TERMS n/30
Post.
Date Description Ref. Debit Credit Balance
2007
Jan. 9 Invoice 110, 1/5/07 P6 2,360 2,360
29 Invoice 315, 1/26/07 P6 1,600 3,960
NAME Mr. John’s Shoes TERMS n/60
Post.
Date Description Ref. Debit Credit Balance
2007
ACCOUNTS PAYABLE SUBSIDIARY LEDGER
NAME Special Occasion Wholesale Dress Shop TERMS 2/10, n/30
Post.
Date Description Ref. Debit Credit Balance
2007
Jan. 31 Invoice 1044, 1/27/07 P6 5,475 5,475
ACCOUNTS RECEIVABLE SUBSIDIARY LEDGER
NAME Linda Carter TERMS n/30
Post.
Date Description Ref. Debit Credit Balance
2007
Jan. 5 Sales Slip 102 S1 432 432
NAME Teresa Collins TERMS n/30
Post.
Date Description Ref. Debit Credit Balance
2007
Jan. 6 Sales Slip 103 S1 432 432
NAME Demetria Davis TERMS n/30
Post.
Date Description Ref. Debit Credit Balance
2007
Jan. 10 Sales Slip 104 S1 648 648
NAME Tonya Ennis TERMS n/30
Post.
Date Description Ref. Debit Credit Balance
2007
Jan. 29 Sales Slip 110 S1 648 648
NAME Isabel James TERMS n/30
Post.
Date Description Ref. Debit Credit Balance
2007
Jan. 31 Sales Slip 111 S1 810 810
ACCOUNTS RECEIVABLE SUBSIDIARY LEDGER
NAME Cecila Lin TERMS n/30
Post.
Date Description Ref. Debit Credit Balance
2007
Jan. 25 Sales Slip 109 S1 324 324
NAME Amalia Rodrigez TERMS n/30
Post.
Date Description Ref. Debit Credit Balance
2007
Jan. 17 Sales Slip 106 S1 864 864
NAME Sherrye Samuels TERMS n/30
Post.
Date Description Ref. Debit Credit Balance
2007
Jan. 24 Sales Slip 108 S1 432 432
NAME Sarah Valdez TERMS n/30
Post.
Date Description Ref. Debit Credit Balance
2007
Jan. 4 Sales Slip 101 S1 864 864
NAME Rosabla Vasquez TERMS n/30
Post.
Date Description Ref. Debit Credit Balance
2007
Jan. 21 Sales Slip 107 S1 2,160 2,160
NAME Jeraldine Wells TERMS n/30
Post.
Date Description Ref. Debit Credit Balance
2007
Jan. 14 Sales Slip 105 S1 540 540
GENERAL LEDGER
ACCOUNT Accounts Receivable ACCOUNT NO. 111
Post. Balance
Date Description Ref. Debit Credit Debit Credit
2007
Jan. 31 S1 8,154 8,154
ACCOUNT Accounts Payable ACCOUNT NO. 205
Post. Balance
Date Description Ref. Debit Credit Debit Credit
2007
Jan. 31 P6 31,713 31,713
ACCOUNT Sales Tax Payable ACCOUNT NO. 231
Post. Balance
Date Description Ref. Debit Credit Debit Credit
2007
Jan. 31 S1 604 604
ACCOUNT Sales ACCOUNT NO. 401
Post. Balance
Date Description Ref. Debit Credit Debit Credit
2007
Jan. 31 S1 7,550 7,550
ACCOUNT Purchases ACCOUNT NO. 501
Post. Balance
Date Description Ref. Debit Credit Debit Credit
2007
Jan. 31 P6 31,010 31,010
ACCOUNT Freight In ACCOUNT NO. 502
Post. Balance
Date Description Ref. Debit Credit Debit Credit
2007
Jan. 31 P6 703 703
WORLD OF FASHIONS Schedule of Accounts Payable
January 31, 2007
Fashion Center . . . 5,112 Handbag Depot . . . 3,569
Hosiery Warehouse . . . 900
House of Styles, Inc. . . 3,968 International Executive . . . 5,529 Modern Woman Pants & Suits Company . . 3,960 Mr. John’s Shoes . . . 3,200 Special Occasion Wholesale Dress Shop . 5,475 Total . . . 31,713 WORLD OF FASHIONS Schedule of Accounts Receivable January 31, 2007 Linda Carter . . . 432
Teresa Collins . . . 432
Demetria Davis . . . 648
Tonya Ennis . . . 648
Isabel James . . . 810
Cecila Lin . . . 324
Amalia Rodrigez . . . 864
Sherrye Samuels . . . 432
Sarah Valdez . . . 864
Rosabla Vasquez . . . 2,160 Jeraldine Wells . . . 540
Total . . . 8,154 Net Delivered Cost of Purchases Purchases . . . $31,010 Freight In . . . 703 Delivered Cost of Purchases . . . $31,713
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.
Financial Statement Analysis 1. 2004: 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 True–False 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
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.
