Glencoe Accounting Unit 4 Chapter 15 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. 1

Chapter 15Accounting for Purchases and

Cash Payments

What You’ll Learn Explain the procedures for processing a purchase

on account. Describe the accounts used in the purchasing

process. Identify controls over cash. Analyze transaction relating to the purchase of

merchandise. Record a variety of purchases and cash payment

transactions. Post to the accounts payable subsidiary ledger. Define the accounting terms in this chapter.

Glencoe Accounting Unit 4 Chapter 15 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. 2

Chapter 15, Section 1Purchasing Items Needed by a Business

What Do You Think?What could occur if the buying process was not handled in an orderly fashion?

Glencoe Accounting Unit 4 Chapter 15 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. 3

Main IdeaMerchandising businesses follow an orderly process for purchasing merchandise, supplies, and equipment.

You Will Learn the fours stages in purchasing items for a

business and the processes and documents related to each stage.

the purpose of the Purchases account.

Purchasing Items Needed by a Business

SECTION 15.1

Glencoe Accounting Unit 4 Chapter 15 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. 4

Key Terms purchase requisition purchase order packing slip processing stamp purchases discount discount period Purchases account cost of merchandise

Purchasing Items Needed by a Business

SECTION 15.1

Glencoe Accounting Unit 4 Chapter 15 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. 5

The Purchasing ProcessRetail businesses need shopping bags, sales slips, and register receipts. They must also purchase other supplies, equipment, and merchandise. The purchase of the latter is divided into four stages:

requesting needed items ordering from a supplier verifying items received processing the supplier’s invoice

Purchasing Items Needed by a Business

SECTION 15.1

Glencoe Accounting Unit 4 Chapter 15 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. 6

Requesting Needed ItemsWhen a company needs to buy supplies, equipment, or merchandise, a purchase requisition is prepared to request to order the specified items.

Purchasing Items Needed by a Business

SECTION 15.1

Glencoe Accounting Unit 4 Chapter 15 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. 7

Ordering from a SupplierInformation from the purchase requisition is used to write a purchase order. The purchase order contains:

quantity description unit price total cost supplier’s name and address date needed shipping method (optional)

Purchasing Items Needed by a Business

SECTION 15.1

Glencoe Accounting Unit 4 Chapter 15 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. 8

Verifying Items ReceivedA supplier accepts a purchase order by shipping the items and billing the buyer for them. A shipment includes a packing slip that lists all shipped items. When a shipment arrives:

The buyer unpacks and checks the contents against the packing slip.

The buyer reports discrepancies to the accounting department.

Purchasing Items Needed by a Business

SECTION 15.1

Glencoe Accounting Unit 4 Chapter 15 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. 9

Processing the Supplier’s InvoiceThe supplier sends an invoice, or bill, to the buyer containing the terms and the item quantity, description, price, and total cost. The accounting department checks the invoice against the packing slip and purchase order.

If there are no discrepancies, a processing stamp is placed on the invoice and the invoice becomes the source for a journal entry.

Large businesses may use the voucher system for internal control.

Purchasing Items Needed by a Business

SECTION 15.1

Glencoe Accounting Unit 4 Chapter 15 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. 10

Purchases DiscountsThe buyer may receive a purchases discount for early payment. If the credit terms listed on the invoice are 2/10, n/30, the buyer can receive a 2% discount if payment is made within 10 days, the discount period.

If the invoice is not paid within 10 days, the buyer must pay the net amount within 30 days.

Purchasing Items Needed by a Business

SECTION 15.1

Glencoe Accounting Unit 4 Chapter 15 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. 11

Processing the Supplier’s Invoice

Purchasing Items Needed by a Business

SECTION 15.1

Glencoe Accounting Unit 4 Chapter 15 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. 12

The Purchases AccountsMerchandise bought to sell to customers is recorded in the Purchases account, a temporary account that is classified as a cost of merchandise account. The Purchases account follows the rules of debit and credit for expense accounts. It is

increased by debits, decreased by credits, and has a normal debit balance.

Purchasing Items Needed by a Business

SECTION 15.1

Glencoe Accounting Unit 4 Chapter 15 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. 13

Key Terms Review purchase requisition

A written request that a specified item or items be orders.

purchase order

A written offer to a supplier to buy specified items. packing slip

A form that lists the items included in the shipment. processing stamp

A stamp placed on a creditor’s invoice that outlines the steps to be followed in processing the invoice for payment.

Purchasing Items Needed by a Business

SECTION 15.1

Glencoe Accounting Unit 4 Chapter 15 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. 14

Key Terms Review purchases discount

The buyer’s cash discount for early payment of an invoice on account.

discount period

The period of time within which an invoice must be paid if a discount is to be taken.

Purchases account

The account used to record the cost of merchandise purchased during a period.

cost of merchandise

The actual cost to the business of the merchandise sold to customers.

Purchasing Items Needed by a Business

SECTION 15.1