Problem 10: Purchases. NBEA Achievement Standard: Demonstrate the skills and competencies required to be successful in the accounting profession.

Transcription

1 Algorithmic Problems and Simulations 1 st Web- Based Edition Problem 10: Purchases Handy- Dandy Hardware Store NBEA Achievement Standard: Demonstrate the skills and competencies required to be successful in the accounting profession. Page 1

2 CHART OF ACCOUNTS Handy- Dandy Hardware Store ASSETS 101 Cash 102 Petty Cash 105 Accounts Receivable 115 Merchandise Inventory 123 Office Supplies 134 Office Equipment 138 Automobiles LIABILITIES 201 Accounts Payable OWNER S EQUITY 301 H. Dandy, Capital 302 H. Dandy, Drawing 401 Sales REVENUE COST of MERCHANDISE 501 Purchases 502 Purchases Discounts 503 Purchases Returns and Allowances Page 2

3 OPERATING EXPENSES 601 Salaries and Wages Expense 603 Rent Expense 607 Office Supplies Expense 608 Advertising Expense 609 Delivery Expense 620 Professional Services 625 Utilities Expense 626 Telephone Expense 628 Banking Expenses 650 Miscellaneous Expense Handy- Dandy Hardware Store Businesses purchase many items, however, for accountants, the use of the term purchases exclusively refers to the purchase of merchandise for resale. Most wholesalers list their products for sale in a catalog. To avoid printing a new catalog every time there is a price change, wholesalers will send their customers (retailers) a list of trade discounts. The trade discount is an amount that is deducted from the list (or catalog) price of the item. When the wholesaler s cost of the item increases or decreases, the wholesaler simply changes the trade discount allowed on the item. For example, if the item has a list price of $100, and the trade discount is 20%, the invoice price of the item to the retailer is $80. The easiest method of determining the invoice price, when a trade discount is given, is to multiply the list price by the complement of the trade discount, or $100 x 80% = $80. Trade discounts are never recorded. When merchandise is purchased, the cost of the merchandise is charged (debited) to an account titled Purchases; and either Accounts Payable or Cash is credited for the cost of the merchandise. The objective evidence for recording a purchase of merchandise is called a Purchase Invoice. Purchasers are oftentimes given an incentive to pay the invoice early. This incentive, called a purchases discount, is described in the credit terms of the invoice. For example, if the credit terms are 2/10, n/30, the terms are understood to be: a 2% discount from the invoice price is allowed if the invoice is paid on or before 10 days after the date of the invoice, else the invoice price is due 30 days after the invoice date. The 10- day period is called the discount period. The 30- day period is called the credit period. A purchase discount is recorded at the time of payment, when it is earned, and is credited to an account titled Purchases Discount. Page 3

4 When a purchased item is damaged in shipment, or is rejected by the buyer, the vendor issues a Debit Memorandum. This entitles the buyer to deduct the invoice price of the item(s) returned from the invoice price. The amount to be deducted is credited to an account titled Purchases Returns and Allowances. The Purchases Discount account and the Purchases Returns and Allowances accounts are called contra accounts, because they reduce the net cost of merchandise. In this problem, you will calculate a trade discount, record purchases, calculate and record purchases discounts, record purchases returns and allowances, and record petty cash replenishments, and possibly cash short or over. Other daily activities, such as sales or payment of expenses, are ignored in this problem. Begin the Problem: 1. After logging in, from the Menu Bar of the Data Entry page, move the pointer to Problems, then down to Problem 10, Purchases, and click. 2. Move the pointer to Journal/Ledgers/Statements, select General Ledger, and print the September 15 Trial Balance. 3. Click on OK, at the message directing you to click on Daily JE. Click OK again if there are no current journal entries. The Clear Screen button: When accessing the Data Entry Page, if there are journal entries already recorded in an earlier session, the last entry recorded will appear in the data entry form. Click on the Clear Screen button to erase this entry. This action will not erase the entry from your journal. This feature allows you to view the last entry you made prior to logging off the program. Note: Transactions for September 1 to September 15 have already been recorded for you. September 16: Purchased merchandise on credit Merchandise was purchased, on credit, from Baker Supply for $ Credit terms are 2/10, n/30. Invoice Number: B2010. Page 4

5 September 19: Paid a vendor s invoice A check was issued to Petunia Patch Nursery for $ of merchandise received on September 9. Petunia Patch Nursery offers credit terms of 2/10, n/30. Record the payment and the purchases discount. Check Number: Invoice Number: PP670. September 20: Purchased merchandise on credit Merchandise was purchased, on credit, from Grant s Wholesale Hardware for $2, Credit terms are 2/10, n/30. Invoice Number: G3498. September 23: Returned damaged merchandise Five hundred dollars ($500.00) of merchandise received from Grant s Wholesale Hardware was damaged in delivery. The damaged merchandise was returned to Grant s Wholesale Hardware. Grant s issued a debit memorandum to Handy Dandy Hardware for the returned merchandise. Record this purchase return and allowance. Invoice Number: G3498. Debit Memo Number: DM368. September 25: Purchased office equipment with cash Office equipment, with a list price of $1, and a trade discount of 25% was purchased for cash. Check Number: Invoice Number: S2356. September 26: Paid a vendor s invoice A check was issued to Baker Supply for invoice number B2010 dated September 16. Record the payment and the purchases discount earned for payment within the discount period. Check Number: Invoice Number: B2010. September 29: Purchased merchandise on credit Hardware, with a list price of $1, and a trade discount of 10% from list price was purchased on credit from Baker Supply. Credit terms are 2/10, n/30. Invoice Number: B3426. Page 5

6 September 30: Paid a vendor s invoice A check was issued to Grant s Wholesale Hardware for the $2, invoice dated September 20 less the return of $ of damaged merchandise of September 23. The credit terms are 2/10, n/30. Check Number: Invoice Number: G3498. September 30: Replenished the petty cash fund. Between September 1 and September 27, petty cash funds of $97.00 was used to pay miscellaneous expenses of $65.00 and delivery expenses of $ There is $3.00 remaining in currency and coin in the petty cash fund. Record the check to replenish the petty cash fund. Check Number: Invoice Number: PC901. This completes the transactions of September 1 to September 30 End of the Month Procedures 1. Move the pointer to Journal/Ledgers/Statements on the Menu Bar and select General Ledger. Click on Print, and print the Trial Balance for September Move the pointer to Check Figures on the Menu Bar. 3. Click on Problem Check Figures. 4. Print the Check Figures for Problem 10. If Your Balances match the Correct Balances for the selected account totals in the Check Figures for Problem 10, then complete the instructions below, and answer the questions on the examination on the last page of this manual. 5. Move the pointer to Journal/Ledgers/Statements in the Menu Bar, then down to General Ledger and click. Click on the Ledger Card Button, and select 201 Accounts Payable. Click on the Print button and print the Accounts Payable Ledger card. 6. Move the pointer to Journal/Ledgers/Statements in the Menu Bar, then down to General Journal and click. The General Journal will appear on the screen. Print the journal. Page 6

7 7. When all of the required documents have been printed, you have completed your computer work for the Problem 10 - Purchases. To exit the problem, click on Log Out. From the PKL software Home Page you may make another selection or exit the website by clicking on the Close button. If Your Balances do not match the Correct Balances of the selected account totals in the Check Figures for Problem 10, you must correct the unmatched balances before answering the evaluation questions. Any account that does not match provides a clue to the transaction(s) that should be reviewed. The most efficient method of locating and correcting the error(s) is to compare the journal entries to the transactions in the module. Use the correction system designed specifically for the accounting system for accuracy, efficiency, and a clear audit trail. You have two options available to you for handling unmatched balances. Option One: Examine your documents, locate the error/s, and return to Data Entry and record the required correction entries using the error correction system demonstrated in Problem 1. Option Two: If you find that you have several errors, you may wish to reset to the beginning of the problem and record the transactions again. To reset back to the beginning of the problem, move the pointer to Support and down to Files: Reset and Backup, select Reset Problem, and click. Select the problem you wish to reset, and then click on Reset Selected Problems. Your data files will be set back to the beginning of the problem. Page 7

8 DIGITAL SPLASH - PROBLEM TEN PURCHASES NAME DAY AND TIME DATE 1. What is the total of the September 30 Trial Balance? 2. What is the total of Purchases on the September 30 Trial Balance? 3. What is the total of Purchases Discounts on the September 30 Trial Balance? 4. What is the total of Purchases Returns and Allowances on the September 30 Trial Balance? 5. From the September 30 Trial Balance, calculate the dollar amount of net purchases. 6. What was the amount of the credit to Purchases Discount when the payment was made to Grant s Wholesale Hardware on September 30? 7. What was the amount of the credit to Purchases Discount when the payment was made to Baker Supply on September 26? 8. What was the amount of the debit to Office Equipment on September 25? 9. What is the balance of the Cash account? 10. What is the balance of the Accounts Payable account? Page 8