ACCOUNTING FOR A

MERCHANT BUSINESS

Chapters 10

PARTNERSHIPS Partnership

A business with two or more owners combining their assets and skills

PartnerEach member/owner of a partnership

JOURNALIZING PURCHASES OF MERCHANDISE FOR

CASH

Lesson 10.1

OMNI IMPORTS Merchandising Business

A business that purchases and sells goods Retail Merchandising Business

A merchandising business that sells to those who use or consume the goods

MerchandiseGoods that a merchandising business

purchases to sell Wholesale Merchandising Business

A business that buys and resells merchandise to retail merchandising businesses

EXPANDED JOURNAL P.229

5-Column vs. 11-ColumnThe number of amount columns

Encore Music – 5-Column Journal

Omni Imports – 11-Column JournalNew special amount columns:

A/R, A/P, Purchases Dr., Sales Tax Payable Cr.

Special amount columnsFor accounts that are used frequentlyTo save time and space

PURCHASING MERCHANDISE P.230

Cost of Merchandise/Cost of Goods Sold (COGS)The price a business pays for goods it will sell

MarkupThe amount added to the cost of merchandise

to establish the selling price Vendor

The business which merchandise, supplies, or other assets are bought

CONCEPT: Historical CostAmount paid for merchandise or other items

bought is recorded

PURCHASES Cost account

Because it is in the cost of merchandise division of the chart of accounts

Look at Omni Imports Chart of Accounts on p. 225

Temporary Account ONLY merchandise

purchases (not supplies or any other purchase)

Purchases

CreditDebit

normal

ENTRY #1, P.231

PAYING CASH FOR MERCHANDISE

November 1Purchased

merchandise for cash, $575.00. Check No. 290.

Purchases

Cash

575.00

575.00

Complete 10-1 WT

Page 232

JOURNALIZING PURCHASES OF

MERCHANDISE ON ACCOUNT AND

BUYING SUPPLIES

Lesson 10-2

PURCHASE INVOICE P.233

Purchase InvoiceAn invoice used as a source document for

recording a purchase on account transaction

Created by the vendorOmni Imports give the invoice its own

number Terms of Sale

An agreement between a buyer and seller about payment for merchandise

Ex: 30days (payment is due within 30 days of the vendor’s date of the invoice)

ENTRY #2, P.234

PURCHASING MERCHANDISE ON ACCOUNT

November 2Purchased

merchandise on account from Crown Ltd., $2,039.00. Purchase Invoice No. 83.

Purchases

Accounts Payable

2,039.00

2,039.00

ENTRY #3, P.235

PAYING CASH FOR SUPPLIES

November 5Paid cash for

office supplies, $34.00. Check No. 292

Office Supplies are supplies used in general business operations (paper, pens, price tags, etc.)

Supplies - Office

Cash

34.00

34.00

ENTRY #4, P.236

BUYING SUPPLIES ON ACCOUNT

November 6Bought store

supplies on account from Foxfire Supply, $210.00. Memorandum No. 52

An invoice is received from the vendor when buying on account, to avoid confusion a memo is attached and used as the source document

Supplies - Store

Accounts Payable

210.00

210.00

Complete 10-2 WT

Page 237

JOURNALIZING CASH PAYMENTS AND

OTHER TRANSACTIONS

Lesson 10-3

ENTRY #5, P.238

CASH PAYMENT ON ACCOUNT

November 7Paid cash on

account to Pacific Imports, $1,050.00, covering Purchase Invoice No. 81. Check No. 294

Check no. is used as the source doc because it is our source

Accounts Payable

Cash

1,050.00

1,050.00

ENTRY #6, P.239

CASH PAYMENT OF AN EXPENSE

November 9Paid cash for

advertising, $150.00. Check No. 296.

Advertising Expense

Cash

150.00

150.00

ENTRY #7, P.240

CASH PAYMENT TO REPLENISH PETTY CASH

November 9Paid cash to

replenish the petty cash fund, $205.00: office supplies, $35.00; store supplies, $47.00; advertising, $92.00; miscellaneous, $31.00. Check No. 297

Supplies - Office

35.00

Supplies - Store47.00

Cash

205.00

Miscs Expense31.00

Advertising Expense92.00

ENTRY #8, P.241

CASH WITHDRAWALS BY PARTNERS

November 10Michelle Wu,

partner, withdrew cash for personal use, $1,200.00. Check No. 298.

Michelle Wu, Drawing

Cash

1,200.00

1,200.00

ENTRY #9, P.242

MERCHANDISE WITHDRAWALS BY PARTNERS

November 12Karl Koehn,

partner, withdrew merchandise for personal use, $300.00. Memorandum No. 53.

Karl Koehn, Drawing

Purchases

300.00

300.00

Complete 10-3 WTand 10-4 AP

Page 243 and 246

JOURNALIZING SALES AND

CASH RECEIPTSChapter 11

SALES TAX Customer

A person or business to whom merchandise or services are sold

Sales TaxA tax on a sale of

merchandise or services

Sales Tax Payable

CreditDebit

normal

Price of Goods x Sales Tax Rate = Sales Tax

$300.00 x 6% = $18.00

Price of Goods + Sales Tax = Total Amt Received

$300.00 + $18.00 = $318.00

JOURNALIZING SALES AND CASH RECEIPTS

FROM SALES

Lesson 11.1

SALE OF MERCHANDISE P.254

CONCEPT: Realization of Revenue No matter when payment is made revenue is

recorded at the time of sale Cash Sale

A sale where cash is received at the time of sale

Credit Card SaleA sale where a credit card is used at the time

of saleMajor bank approved credit cards: VISA,

MasterCard, Discover Credit card slip

Totaled and recorded at the end of each weekSource Document – Cash Register Tape

CREDIT CARD (CC) SALES P.254

1. Omni Imports creates a cc slip for each cc sale

2. All cc slips sent to bank each week with weekly deposit to Omni’s bank

3. Omni’s bank accepts the cc slips the same way it accepts cash for deposit

4. If a cc was issued by another bank, Omni’s bank sends the cc slip to the issuing bank

5. The issuing bank bills the customer and collects the amount owed

6. The bank that accepts and processes the cc slip for a business charges a fee for the service

7. The fee is included on Omni’s monthly bank statement

ENTRY #10, P.255

CASH AND CC SALES November 4

Recorded cash and credit card sales, $5,460.00, plus sales tax, $327.60; total $5,787.60. Cash Register Tape No. 4.

Cash & cc sales recorded in same deposit

Cash Register Tape is numbered based on the day of the month (T4)

The month of November started on a Wednesday – short week of sales

Cash

Sales Tax Payable

5,787.60

327.60

Sales

5,460.00

SALES INVOICE P. 256

Sale on accountA sale where cash is received later

InvoicePrepared when merchandise is sold on

accountDescribes the goods, quantity, and priceSales Invoice - Source document for

recording a sale on account (CONCEPT: Objective Evidence) A.k.a. – sales ticket, sales slip

3 copies: Customer, Shipping Dept., Accounting

Dept.

ENTRY #11, P.257

SALE ON ACCOUNT November 3

Sold merchandise on account to Children’s paradise, $816.00, plus sales tax, $48.96; total, $864.96. Sales Invoice No. 76.

Even though cash is not received yet we still record the sale (CONCEPT: Realization of Revenue)

Accounts Receivable

Sales Tax Payable

864.96

48.96

Sales

816.00

ENTRY #12, P.258

CASH RECEIPTS ON ACCOUNT November 6

Received cash on account from Fiesta Costumes, $2,162.40, covering $69. Receipt No. 90.

Omni prepares a receipt whenever cash is received and uses it as the source document

2 copies: customer, accounting dept.

Cash

2,162.40

Accounts Receivable

2,162.40

Complete 11-1 WT

Page 259

PROVING AND RULING AN

EXPANDED JOURNAL

Lesson 11.2

CARRYING TOTALS FORWARD P.254

Prove a Journal1. Rule single line above last line of all amount

columns2. Date3. Write “Carried Forward” in the account title

column4. Check mark in “Post. Ref.” column5. Total all amount columns below single underline6. Verify that the Debits = Credits using the

form on page 2607. Double underline below all totals in the amount

columns Account totals are verified as correct

STARTING A NEW JOURNAL PAGE P. 262

Bring amounts forward to next Journal page1. Write the new Journal page number on

both pages of journal (expanded journal goes on two pages)

2. Date (same as last line of previous page)3. Write “Brought Forward” in the account

title column4. Check mark in “Post. Ref.” column5. Bring all totals forward from previous

journal page

PROVING AND RULING A JOURNAL AT THE END OF THE MONTH P. 264

Prove the Journal page at the end of the month1. Single underline2. “Totals” written in account title column3. Total all amount columns4. Verify that the Debits = Credits using the

form on page 2605. Double underline below totals

PROVING AND RULING A JOURNAL AT THE END OF THE MONTH P. 264

Prove cash at the end of the monthUsing the form on page 264:

1. Add all cash received during the month (Cash debit column) to the previous cash balance and subtotal

2. Subtract all cash spend during the month (Cash credit column) to the subtotal and total

3. Match this amount with the amount on your last unused check stub

Cash balance on your Journal MUST agree with the cash balance on your last unused check stub

Complete 11-2 WTand 11-3 AP

Page 266