2. Using an expanded journal is not practical or
efficient as the amount of transactions grows.
Special journals that capture a specific type of
transaction can be used.
The journalizing effort can be shared among
multiple bookkeepers/accounting clerks.
The posting effort can be shared among multiple
bookkeepers/accounting clerks.
There are several special journals, the business
decides which it will use.
3.
Transaction: purchase by business of merchandise on account
ONLY!
Debit Purchases/Credit Accounts Payable
Need to identify the vendor
4. Purchase Requisition: submitted by business
department “requesting” something. Usually sent
to purchasing department.
Purchase Order: prepared by purchasing
department and sent to vendor.
Purchase Invoice: prepared by vendor and sent to
business. Identifies products, quantities, amount
due, terms of sale.
Packing Slip: accompanies shipment. Identifies
contents shipped.
5. Transaction: any cash payments made by
business recorded in this journal.
Source document is usually a check.
Anytime business spends cash/money.
6. Offered by vendor to encourage early payment of
invoice.
Terms: 2/10, n/30 translates to 2% off if paid within 10
days of invoice date otherwise net (full) amount due in
30 days.
Business can reduce amount they have to pay on
invoice.
Amount of reduction known as a purchase discount.
Amount is reflected in an account known as
Purchases Discount.
7.
Purchases Discount has normal credit balance. It affects
the Purchases account which has a normal debit
balance. So, Purchases Discount reduces the account it
affects, namely Purchases. So, Purchases Discount is
referred to as a “contra” account since it runs contrary to
or opposite the account if affects.
Recall, the business has an accounts payable at the full
amount that they owe however they end up paying less
than they owe so Purchases Discount reflects that
difference.
8.
Business purchases $2,000 worth of merchandise on account.
Terms of sale are 2/10, n/30. Business pays within 10 days so
they can take discount.
$2,000 * .02 = $40 discount on purchase. Business pays
$2,000 - $40 = $1,960 to vendor.
How is this payment journalized?
Debit Accounts Payable full amount $2,000
Credit Cash $1,960 to reflect payment
Credit Purchases Discount $40 to reflect discount
$2,000 debit = $1,960 credit + $40 credit
Debits = Credits, which is what we want!
9.
Recognize that not all transactions can be entered in
a special journal so the business will maintain a
general journal to act as a catch all for transactions
that can not be journalized in a special journal.
Purchase Returns: business sends product back to
the vendor.
Purchase Allowance: business keeps shipment but
vendor grants allowance so business pays less than
invoice.
10. Business will prepare a debit memorandum to
send to vendor identifying the amount of the debit
or reduction to their Accounts Payable.
Debit memo will be source document for these
return and allowance transactions.
Business captures the return or allowance amount
in an account known as
Purchases Returns and Allowances
As with Purchases Discounts this lets business
track returns and allowances in place of crediting
the Purchases account.
11.
Purchases Returns and Allowances (PRA) has
normal credit balance. It affects the Purchases
account which has a normal debit balance. So,
PRA reduces the account it affects, namely
Purchases. So, PRA is referred to as a “contra”
account since it runs contrary to or opposite the
account if affects.
12. To journalize a return you DEBIT Accounts
Payable/Vendor the amount of the return and
CREDIT Purchases Returns and Allowances the
amount of the return.
To journalize an allowance you DEBIT Accounts
Payable/Vendor the amount of the allowance and
CREDIT Purchases Returns and Allowances the
amount of the allowance.
These contra accounts are used so the Purchases
account is not affected with credits.
