COLLEGE ACCOUNTING

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College Accounting First Canadian
Edition Price Haddock Brock Hahn
Reed
McGraw-Hill Ryerson
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CHAPTER 7
ACCOUNTING FOR MERCHANDISE PURCHASES, ACCOUNTS
PAYABLE AND CASH PAYMENTS
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JOURNALS
Type of Journal
Purpose
Sales
To record sales of merchandise on credit
Purchases
To record purchases of merchandise on credit
Cash receipts
To record cash received from all sources
Cash payments
To record all disbursements of cash
General
To record all transactions that are not recorded
in another special journal and all adjusting and
closing entries
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LEDGERS
Type of Ledger
Content
General
Assets, liabilities, owners equity, revenue, and
expense accounts
Accounts receivable
Accounts for credit customers
Accounts payable
Accounts for creditors
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FASHION WORLD Chart of Accounts
ASSETS OWNERS EQUITY 1001 Cash 3001
Carolyn Wells, Capital 1005 Petty Cash
Fund 3002 Carolyn Wells, Drawing 1009
Notes Receivable 3099 Income Summary 1011
Accounts Receivable REVENUE 1012 Allowance
for Doubtful Accounts 4001 Sales 1016
Interest Receivable 4051 Sales Returns and
Allowances 1021 Merchandise Inventory 4091
Interest Revenue 1023 Prepaid GST 4093
Miscellaneous Revenue 1024 GST
Payable EXPENSES 1026 Prepaid
Insurance 5001 Cost of Goods Sold 1027
Prepaid Interest 5011 Sales Salaries Expense
1029 Supplies 5014 Advertising Expense
1031 Store Equipment 5017 Supplies Expense
1032 Accumulated Amortization-Store
Equipment 5020 Cash Over or Short 1041 Office
Equipment 5026 Amortization Expense - Store
Equipment 1042 Accumulated Amortization-Office
Equipment 5035 Rent Expense LIABILITIES
5036 Insurance Expense 2001 Notes
Payable-Trade 5038 Utilities Expense 2002
Notes Payable Bank 5041 Office Sales Expense
2005 Accounts Payable 5044 Payroll Taxes
Expense 2016 Interest Payable 5053
Telephone Expense 2021 Canada Pension Plan
Payable 5056 Uncollectible Accounts Exp. 2022
Employee Benefits Payable 5059 Amortization
Exp. Office Equipment 2023 Employee Income
Taxes Payable 5091 Interest Expense 2025
Employment Insurance Payable 5093 Miscellaneous
Expense 2029 Salaries Payable 2031
Sales Tax Payable
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FREIGHT IN
The seller can bill the buyer and add the cost of
transportation to the invoice.
OR
The buyer can pay the freight charges directly to
the freight company.
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PURCHASING PROCEDURES
Sales Department sends authorized Purchase
Requisition to Purchasing Department.
Purchasing Department issues authorized Purchase
Order and sends to selected supplier.
Receiving Report is prepared when merchandise is
received Purchasing Department audits the
suppliers Invoice, or bill.
Purchasing Department contacts supplier if
merchandise is defective.
The Accounting Department is given a copy of
Invoice, Purchase Order, and Receiving Report to
recheck. They then issue a cheque to supplier
and record payment.
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1021 1023 2005 1021 1023 2005 1021 1023 200
5 1021 1023 2005
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OBJECTIVE 1 Record purchases of merchandise on
credit in a four-column purchases journal.
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PURCHASES JOURNAL
PAGE 1
The purchases account is used only for the
purchase of merchandise for resale.
A purchases journal is used to record the
purchase of merchandise on account.
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PURCHASES JOURNAL
PAGE 1
The invoice number column contains the number of
the invoice sent to Fashion World by the vendor.
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PURCHASES JOURNAL
PAGE 1
Look at the terms for Prestige Clothing
Store---2/10, n/30 means that if you want to
receive a 2 discount you must pay within 10
days otherwise, you must pay the full amount
within 30 days.N stands for the net amount of
the invoice.
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OBJECTIVE 2 Post from the four-column purchases
journal to the general ledger accounts.
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PURCHASES JOURNAL
PAGE 1
((1021)
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PURCHASES JOURNAL
PAGE 1
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PURCHASES JOURNAL
PAGE 1
(1023)
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PURCHASES JOURNAL
PAGE 1
(2005)
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Name Clothes-R-Us Terms
n/30 Address 1002 Valley Street, Regina,
Saskatchewan DATE EXPLANATION POST.
DEBIT CREDIT BALANCE
REF. 20X3 Jan.
1 Balance ?
400.00 5 Inv. 8090, 12/31/X2
P1 1,562.20 1,962.20
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OBJECTIVE 3 Post purchases on credit from the
purchases journal to the accounts
payable subsidiary ledger.
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ACCOUNTS PAYABLE SUBSIDIARY LEDGER
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ACCOUNTS PAYABLE SUBSIDIARY LEDGER
Name Clothes-R-Us
Terms n/30 Address
1002 Valley Street, Regina, Saskatchewan DATE
EXPLANATION POST. DEBIT CREDIT
BALANCE
REF. 20X3 Jan. 1 Balance
?
400.00
1962.20
5 Inv. 8090, 12/31/X2 P1 1,562.20
17 CM 37 J1 267.50
1694.70
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OBJECTIVE 4 Record purchases returns and
allowances in the general journal.
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17 CM 37 J1
267.50 1,694.70
Accounts Payable Subsidiary Account
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1. Fashion World received merchandise from
Clothes-R-Us on January 5, 20X3.
2. Fashion World finds some of the merchandise
is damaged.
3. Clothes-R-Us agrees to accept the return of
damaged goods.
4. Clothes-R-Us issues Fashion World a credit
memo.
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OBJECTIVE 5 Post purchases returns
and allowances from the general journal to the
accounts payable subsidiary ledger.
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OBJECTIVE 6 Record cash payments in a cash
payments journal.
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CASH PAYMENTS JOURNAL
PAGE 1
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CASH PAYMENTS JOURNAL, contd.
PAGE 1
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When there is a cash discount, four elements must
be recorded.
1. The total amount of the purchase (as a debit
to Accounts Payable).
2. The amount of the discount (as a credit to
Merchandise Inventory).
3. The amount of GST avoided (as a credit to
Prepaid GST).
4. The amount of cash paid out (as a credit to
Cash).
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The cash payment journal provides the same kind
of benefits as other special journals. They are

1. It simplifies and speeds up both the
journalizing and posting of cash payments.
2. It permits division of labour because several
members of the accounting staff can record
transactions in different special journals at the
same time.
3. It improves the audit trail because all cash
payments are grouped together in one record and
are listed by cheque number.
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OBJECTIVE 7 Post from the cash payments journal
to subsidiary and general ledgers.
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Name Prestige Clothing Store Terms
2/10,n/30 Address 1220 Valley Street,
Regina, Saskatchewan DATE EXPLANATION
POST. DEBIT CREDIT BALANCE

REF. 20X3 Jan. 1 Balance
? 550.00 2
P1 1,738.75 2,288.75
12 CP1 1,738.75 550.00
29 CP1 200.00
350.00
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CASH PAYMENTS JOURNAL
PAGE 1
(2005)
(1023)
(1023)
(1021)
(1001)
X
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CASH PAYMENTS JOURNAL
PAGE 1
(2005)
(1023)
(1023)
(1021)
(1001)
X
ACCOUNT Merchandise Inventory
ACCOUNT NO. 1021 DATE
EXPLANATION POST. DEBIT CREDIT
BALANCE
REF. DEBIT
CREDIT 20X3 Jan. 31
P1 8,610.00 8,610.00
31 CP1 101.10 8,508.90
ACCOUNT Accounts Payable
ACCOUNT NO. 2005 DATE
EXPLANATION POST. DEBIT CREDIT
BALANCE
REF. DEBIT
CREDIT 20X3 Jan. 1 Balance ?
2,700.00
31
P1 10,031.25 12,731.2
5 31 CP1 6,708.85
6.022.40
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Name Quality Clothes Terms 2/10,
n/30 Address 808 Spring Hill Road,
Regina, Saskatchewan DATE EXPLANATION
POST. DEBIT CREDIT BALANCE

REF. 20X3 Jan. 1 Balance
? 600.00 6 Inv. 1234,
12/31/X2 P1 2,300.50
2,900.50 16 CP1
2,300.50
Name Wholesale Fashion Shop Terms
n/30 Address 3300 Prairie Circle Road,
Regina, Saskatchewan DATE EXPLANATION
POST. DEBIT CREDIT BALANCE

REF. 20X3 Jan. 1 Balance ?
400.00
4 Inv. 633, 12/30/X2 P1
1,936.70 2,336.70

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A Schedule of Accounts Payable and the Accounts
Payable Account
FASHION WORLD
Schedule of Accounts Payable
January 31, 20X3
Clothes-R-Us 1094.70 Clothing
Centre 1123.50 Family Fashions
250.00 Prestige Clothing Store
350.00 Quality Clothes 600.00 Wholesale
Fashion Shop 2336.70 Total
5754.90
ACCOUNT Accounts Payable
ACCOUNT NO. 2005 DATE
EXPLANATION POST. DEBIT CREDIT
BALANCE
REF. DEBIT
CREDIT 20X3 Jan. 1 Balance ?
2,700.00 17
J1 267.50
2,432.50 Jan.31 P1
10,031.25 12,463.75
31 CP1 6,708.85
5,754.90
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OBJECTIVE 8 Prepare a schedule of accounts
payable.
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OBJECTIVE 9 Demonstrate a knowledge of the
procedures for effective internal control of
merchandise inventory.
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