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COS OA 58 - Chapter 8 - Accounting for Purchases and Accounts Payable

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Chapter 8: Accounting for Purchases and Accounts PayableChapter Opener: Thinking CriticallyStudents 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 1featured 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 CriticallyAnswers will vary. Store managers are responsible for a wide range of operations and procedures. Theextension of credit, utilizing proprietary credit cards or customer accounts, requires that managersunderstand 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 ApplicationThe Federated Department Stores recruitment Web site (www.federated-fds.com) offers job descriptions forpositions in Store Management, Merchandising, and the Executive Group. The Store Manager is responsiblefor all aspects of running a profitable store location. Buyers execute seasonal merchandise plans and pricingstrategies.Managerial Implications: Thinking CriticallyAnswers will vary. Students should recognize the need for checks and balances for avoiding theft and waste.Discussion QuestionsThese questions are designed to check students’ understanding of the new terms, concepts, and procedurespresented 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 thebalance of the Accounts Payable account.7. The Accounts Payable account is the control account; summarizes the balances of the creditoraccounts.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 within10 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 itsdate, a 1% discount may be taken; otherwise the total amount is due in 20 days. f. If payment is made166 䡲 Chapter 8 Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.Price_SM_ch08.qxd 10/26/05 2:42 PM Page 166within 5 days of its date, a 3 percent discount may be taken; otherwise the total amount is due in 30days. 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 shouldbe recorded in the general journal.ExercisesExercise 8.11. Purchases Journal2. General Journal3. Cash Payments Journal4. Purchases Journal5. General Journal6. Cash Payments JournalExercise 8.2Dr. Cr.1. 501 2052. 205 5033. 205 1014. 501, 502 2055. 205 5036. 501 101Exercise 8.3PURCHASES JOURNAL PAGE 6Accounts FreightInvoice Inv. Post. Payable Purchases in Date Purchased From Number Date Terms Ref. Credit Debit Debit2007July 1 Auto Parts Corp. 6812 6/27 n/30 2,078 1,950 1283 Aplex Company 441 6/30 1/10, n/60 3,200 3,120 805 The Custom Sounds Shop, Inc. 5601 7/1 2/10, n/30 2,550 2,450 10010 Specialty Tire Company 1102 7/8 2/10, n/30 4,250 4,250Exercise 8.4GENERAL JOURNAL PAGE 10Post. Date Description Ref. Debit Credit2007 Feb. 9 Accounts Payable/Discount Appliance Corporation . . . . 3,920Purchases Returns & Allowances . . . . . . . . . . . . . . . 3,920Received CM 244 for damaged merchandise that was returned; original purchase made onInv. 4101, January 3, 2007Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Chapter 8 䡲 167Price_SM_ch08.qxd 10/26/05 2:42 PM Page 167Exercise 8.5GENERAL JOURNAL PAGEPost. Date Description Ref. Debit Credit2007 Mar. 17 Accounts Payable/Town Appliance Mart . . . . . . . . . . . . 1,000Purchases Returns & Allowances . . . . . . . . . . . . . . . 1,000Received CM 112 for damages merchandise;original purchase made on Inv. 911,February 20, 2007Exercise 8.6Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . $42,840Freight In . . . . . . . . . . . . . . . . . . . . . . . . . . 2,076Delivered Cost of Purchases . . . . . . . . . . . $44,916Less Purchases Returns and Allowances . 4,890Net Delivered Cost of Purchases . . . . . . . . $40,026Exercise 8.7a. The total of the schedule of accounts payable will not equal the balance of the Accounts Payablecontrolling account.b. The total of the schedule of accounts payable will not equal the balance of the Accounts Payablecontrolling 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 inthe A/P subsidiary ledger.Exercise 8.8a. Purchases, $93,420b. Purchase Returns & Allowances, $3,250c. Freight In, $3,680d. Delivered Cost of Purchases $100,650168 䡲 Chapter 8 Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.Price_SM_ch08.qxd 10/26/05 2:42 PM Page 168ProblemsProblem 8.1APURCHASES JOURNAL PAGE 14Accounts FreightInvoice Inv. Post. Payable Purchases in Date Purchased From Number Date Terms Ref. Credit Debit Debit2007June 1 Jones Company 4241 5/27 n/60 ✓ 2,175 1,995 1808 Camera & Films Products 1102 6/3 n/45 ✓ 1,390 1,39012 The Optical Supply Store 7282 6/9 1/10, n/60 ✓ 906 90620 Camera & Films Products 1148 6/15 n/45 ✓ 1,125 1,050 7523 Chicago Case Company


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