Mr. Calkins

Accounting I

Spring 2008

Chapter 15

Purchases & Cash Payments

Part A: Accounting Vocabulary

Directions: Identify the letter of choice that best completes the statement or answers the question.

  1. accounts payable subsidiary ledger
  2. bankcard fee
  3. cost of merchandise
  4. debit memorandum
  5. discount period
  6. due date
  7. FOB destination
  8. FOB shipping point
  9. Invoice
  10. Packing slip
  11. Premium
  12. Processing stamp
  13. Purchase discount
  14. Purchase order
  15. Purchase requisition
  16. Purchases account
  17. Purchases allowance
  18. Purchases return
  19. Tickler file

  1. A written offer to a supplier to buy certain items is called a(n)______.
  1. The date an invoice must be paid is called the ______.
  1. A(n)______is a written request that a certain item or items be ordered.
  1. The ______is the actual cost to the business of the merchandise sold to customers.
  1. When the supplier pays the shipping cost to the buyer’s destination or location, the term is called______.
  1. Information placed on an invoice that outlines a set of steps to be followed in processing the invoice for payment is a(n)______.
  1. The period of time within which an invoice must be paid in order to receive an amount off the invoice price is called a(n)______.
  1. A(n)______is a document that lists the credit terms and the quantity, description, unit price, and total cost of the items shipped to the buyer.
  1. A ledger that contains accounts for all creditors and the amount that is owed to each is the ______.
  1. The amount paid for insurance is called the ______.
  1. The form that lists the items included in a shipment is called a(n)______.
  1. The account used to record the cost of merchandise purchased during the fiscal period is the ______.
  1. A cash discount that suppliers often offer credit customers for early payment is a(n) ______.
  1. Merchandise returned by the buyer to the supplier for full credit is a(n) ______.
  1. An amount charged by a bank for handling a business’ bankcard sales slips is a(n) ______.
  1. A(n) ______contains invoices to be paid, arranged by their due dates.
  1. A business receives a(n) ______when it keeps unsatisfactory merchandise, but pays less than the original price.
  1. The source document prepared by the buyer to notify the seller that the seller’s account is to be decreased is called a(n)______.
  1. Shipping terms of ______means that the buyer pays the shipping charge from the supplier’s shipping point.

Part B: Accounting for purchases and Cash Payments Transactions

Directions: Indicate whether the sentence or statement is true or false.

  1. ___The purchases account is increased by debits.
  1. ___Every purchase on account results in a debit to Accounts Payable.
  1. ___A tickler file contains folders for each day of the month so invoices can be placed in the folders according to their due dates.
  1. ___In a computerized accounting system, processing purchases on account is done in a manner similar to a manual system.
  1. ___The purchases account is used only to record the purchases of merchandise for resale.
  1. ___The purchases account is a permanent account.
  1. ___A discount period begins on the date the charge customer receives the invoice.
  1. ___Accounts in the accounts payable subsidiary ledger have normal debit balances.
  1. ___An invoice with terms of 2/10, n/30, dated June 17, must be paid by July 17 in order to take advantage of the cash discount.
  1. ___Shipping charges are considered to be a cost of merchandise.
  1. ___ Purchases discounts is a contra account of Sales Discounts.
  1. ___The Transportation In account is classified as a cost of merchandise account.
  1. ___When journalizing a return of merchandise purchased on account, the subsidiary ledger account is written first, followed by a diagonal line and the general ledger controlling account.
  1. ___The decrease side of the Purchases Returns and Allowances account is a credit.
  1. ___A purchases returns and allowances transaction is posted only to the accounts payable subsidiary ledger.
  1. ___Purchases Returns and Allowances appears in the cost of merchandise section of the chart of accounts.
  1. ___The balance of the Purchases Returns and Allowances account increases the Purchases account.

Part C: Handling Purchases and Cash Payments Transactions

Problem 1-

Directions: For each of the following invoices, determine the last date on which the discount can be taken and the amount of the discount.

InvoiceInvoiceCreditLast Days ofAmount

DateAmountTermsDiscount Periodof Discount

1.May 15$1,479.502/10, n/30______

2.June 16$10,351.202/15, n/50______

3.July 7$339.042/10, n/30 ______

4.October 28$3,065.461/10, n/60______

5.December 7$540.99n/30______

PART C

Problem 2-

Directions: Below are several purchases and cash payments and cash payments transactions of Camblel Home Furnishings. Create a general journal and record the transactions.

Transactions:

Oct1Paid to Seitz Insurance $2,400.00 for the premium on a one-year insurance policy,

Check 445.

5Purchased merchandise on account from Best Inc., $2,300.00, Invoice 302, terms 2/10,

n/30.

6Issued Check 446 for $350.00 to Halliday Transport for shipping charges on merchandise purchased from Best Inc.

12Purchased office supplies for cash, $125.00, Check 447.

14Issued Check 448 for $2,254.00 to Best Inc. for merchandise purchased on account, $2,300.00 less a cash discount of $46.00.

19Purchased a new computer on account from CMS Systems, $2,250.00, Invoice 0190, terms net 30.

23Received Invoice 149 from LaChine Corporation for merchandise purchased on account, $1,675.00, credit terms 1/10, n/45.

28Issued Debit Memo 101 to LaChine Corporation for $395.00 in defective merchandise returned.

30Recorded bankcard fees of $177.50, October bank statement.