Chapter 7 - Accounting for purchases, returns and discounts Flashcards
What does the term ‘purchases’ mean?
The purchase of goods with the intention that they should be RESOLD at a profit.
What is Revenue Expenditure?
The purchase of office appliances along with the running costs of the business e.g. WAGES, HEATING and LIGHTING.
What is Capital Expenditure?
Assets that are running costs of the business but are not recorded as purchases, but instead accounted for as the purchase of an asset.
Examples include BUILDINGS and SHOP FITTINGS.
What is Prompt Payment Discount (PPD)?
A discount offered by a SUPPLIER to customers in order to encourage customers to SETTLE up STRAIGHTAWAY or in a short time from the invoice’s date.
What are the 4 steps where accounting records are prepared for CREDIT PURCHASES, PURCHASES RETURNS and DISCOUNTS RECEIVED transactions?
- ) Start with the FINANCIAL DOCUMENT, either a purchases invoice or a credit note received
- ) Enter it into the APPRORIATE BOOK OF PRIME ENTRY, either PDB, PRDB or DRDB
- ) Transfer the information into double-entry accounts in the GENERAL LEDGER.
- ) Transfer the information to subsidiary accounts of TRADE PAYABLES in the PURCHASES LEDGER
What is the Purchases Day Book?
It is a collection point for accounting information on the credit purchases of a business.
What details have to be entered into purchases invoices in order to write up the purchases day book?
- Date of Invoice
- Name of Supplier
- Purchase Invoice Number, either a SUPPLIER’S invoice number or a unique number given by the BUYER’S accounts department
- Cross-reference to supplier’s account number in purchases ledger e.g. PL125
Is the purchases ledger control account on A PURCHASES DAY BOOK in the GENERAL LEDGER…
Debit or Credit?
Credit
Is the VAT account on A PURCHASES DAY BOOK in the GENERAL LEDGER…
Debit or Credit?
Debit
Is the PURCHASES account on a PURCHASES DAY BOOK in the GENERAL LEDGER…
Debit or Credit?
Debit
What is a subsidiary account?
They are accounts used to provide a note of how much each trade payable is owed by the business.
What is a purchases returns?
When goods previously bought on CREDIT are returned by the business to its suppliers. A CREDIT NOTE is requested and is entered into the accounting system to reduce the amount owing to the trade payable, when received.
What are the 4 things the accounting procedures for purchases returns involve?
- ) Financial Documents - CREDIT NOTES received from suppliers
- ) Book of Prime Entry - PURCHASES RETURNS DAY BOOK
- ) Double-Entry Accounts - VAT, PLCA, Purchases Returns Account
- ) Purchases Ledger - subsidiary accounts for EACH INDIVIDUAL TRADE PAYABLE of the business
Is the VAT account on A PURCHASES RETURNS DAY BOOK in the GENERAL LEDGER…
Debit or Credit?
Credit
Is the PURCHASES LEDGER CONTROL account on A PURCHASES RETURNS DAY BOOK in the GENERAL LEDGER…
Debit or Credit?
Debit
