CHAPTER TWELVE

INTRODUCTION TO MERCHANDISING

BUSINESSES: PURCHASES

12-3

McGraw-Hill/IrwinAccounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights

Reserved.

1. Apply the procedure for checking the accuracy of invoices.

2. Use an unpaid invoice file.

3. Explain the difference between FOB shipping point and FOB destination.

4. Demonstrate the procedure for handling purchases returns and allowances.

5. Compute purchases discounts.

INTRODUCTION TO MERCHANDISING BUSINESSES: PURCHASES

Objectives:

12-4

McGraw-Hill/IrwinAccounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights

Reserved.

Purchasing Merchandise

Businesses that purchase merchandise must have orderly procedures for checking the accuracy of invoices and for making prompt payments.

12-5

McGraw-Hill/IrwinAccounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights

Reserved.

Transportation Charges

•When a business purchases merchandise, it may be required to pay transportation charges from the supplier’s warehouse. These charges are an added cost of the merchandise.

12-6

McGraw-Hill/IrwinAccounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights

Reserved.

Purchase Returns and Allowances

•When a business returns goods or receives an allowance, there is a decrease in the cost of its merchandise purchases.

12-7

McGraw-Hill/IrwinAccounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights

Reserved.

Purchase Discounts

•Cash discounts are called sales discounts by the seller and purchases discounts by the buyer. The discounts apply to the cost of merchandise only.

12-8

McGraw-Hill/IrwinAccounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights

Reserved.

Accounting Terminology

•Extensions

•FOB destination

•FOB shipping point

•Free on board

•Purchase invoice

•Purchases discounts

•Purchases returns and allowances.

•Sales discounts

•Sales invoices

•Tickler file

•Unpaid invoice file

12-9

McGraw-Hill/IrwinAccounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights

Reserved.

Chapter Summary

•A purchase invoice is a bill that a buyer receives for a purchase of merchandise.

• Invoices must be paid within the discount period to obtain the cash discount.

12-10

McGraw-Hill/IrwinAccounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights

Reserved.

Chapter Summary (continued)

•An unpaid invoice file is used to keep track of due dates.

• FOB shipping point means that the purchaser must pay the transportation charges. FOB destination means that the seller must pay the transportation charges.

12-11

McGraw-Hill/IrwinAccounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights

Reserved.

Chapter Summary (continued)

•Purchases returns and allowances decrease the cost of merchandise purchased.

•A credit memorandum shows that the supplier will reduce the purchaser’s account balance by the amount of the return or allowance.

12-12

McGraw-Hill/IrwinAccounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights

Reserved.

Chapter Summary (continued)

•Purchases discounts apply only to the cost of merchandise. They are not allowed on transportation charges, sales tax, or returns and allowances.

12-13

McGraw-Hill/IrwinAccounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights

Reserved.

1. Purchases returns and allowances increase the cost of merchandise purchased.

2. Invoices must be paid within the discount period to obtain the cash discount.

3. A purchase invoice is a bill that a seller receives for a purchase of merchandise.

Topic QuizAnswer the following true/false questions:

TRUE

FALSE

FALSE

12-14

McGraw-Hill/IrwinAccounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights

Reserved.

Investigating on the Internet

Sources of information about purchases can be accessed at various corporate websites.

As a research assignment, access an interesting website and report those sources of information that might concern purchases of merchandise.

12-15

McGraw-Hill/IrwinAccounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights

Reserved.

(Return to Topic Quiz)

1. Purchases returns and allowances increase the cost of merchandise purchased.

FALSEPurchases returns and allowances decrease the cost of merchandise

purchased.

12-16

McGraw-Hill/IrwinAccounting Fundamentals, 7/e © 2006 The McGraw-Hill Companies, Inc., All Rights

Reserved.

(Return to Topic Quiz)

3. A purchase invoice is a bill that a seller receives for a purchase of merchandise.

FALSEA purchase invoice is a bill that a buyer receives for a purchase of

merchandise.