Recording Purchases of Merchandise

Recording Purchases - Recording Purchases of Merchandise Companies may purchase inventory for cash or on account(credit They normally record

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
Recording Purchases of Merchandise Companies may purchase inventory for cash or on account (credit). They normally record purchases when they receive the goods from the seller. Every purchase should be supported by business documents that provide written evidence of the transaction . Each cash purchase should be supported by a canceled check or a cash register receipt indicating the items purchased and amounts paid. Companies record cash purchases by an increase in Merchandise Inventory and a decrease in Cash. Each purchase should be supported by a purchase invoice , which indicates the total purchase price and other relevant information. However, the purchaser does not prepare a separate purchase invoice. Instead, the purchaser uses as a purchase invoice the copy of the sales invoice sent by the seller. In Illustration 5-5 , for example, Sauk Stereo (the buyer) uses as a purchase invoice the sales invoice prepared by PW Audio Supply, Inc. (the seller). 5-5 Sales invoice used as purchase invoice by Sauk Stereo Helpful Hint
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
To better understand the contents of this invoice, identify these items: 1. Seller 2. Invoice date 3. Purchaser 4. Salesperson 5. Credit terms 6. Freight terms 7. Goods sold: catalog number, description, quantity, price per unit 8. Total invoice amount The associated entry for Sauk Stereo for the invoice from PW Audio Supply increases Merchandise Inventory and increases Accounts Payable. Merchandise Inventory (To record goods purchased on account from PW Audio Supply)
Background image of page 2
Under the perpetual inventory system, companies record purchases of merchandise for sale in the Merchandise Inventory account. Thus, Wal-Mart would increase (debit) Merchandise Inventory for clothing, sporting goods, and anything else purchased for resale to customers. Not all purchases are debited to Merchandise Inventory, however. Companies record purchases of assets acquired for use and not for resale, such as supplies, equipment, and similar items, as increases to specific asset accounts rather than to Merchandise Inventory. For example, to record the purchase of materials used to make shelf signs or for cash register receipt paper, Wal-Mart would increase Supplies. Freight Costs
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

This document was uploaded on 11/03/2011 for the course ACCOUNTING ac 201 at Montgomery.

Page1 / 9

Recording Purchases - Recording Purchases of Merchandise Companies may purchase inventory for cash or on account(credit They normally record

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online