Sales and Purchase Transactions

Created by Susan M. Moncada, Ph.D., CPA, Indiana State University
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This material is replicated on a number of sites as part of the SERC Pedagogic Service Project
Initial Publication Date: August 17, 2010

Summary

In a sales transaction, both the selling and buying entities have economic events that must be recognized in their accounting information system. Students enrolled in a principles of financial accounting course often confuse the accounts to be used by the seller and buyer. This problem-based learning activity helps students practice recording a business-to-business sales/purchase transaction that included credit terms from both perspectives. The problem applies the gross method for recording sales and purchases for a perpetual inventory scenario.

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Learning Goals


test-tube gifimage As a result of completing this worksheet, students should be able to:
      • Analyze and compute the effect of credit terms on sales and purchase transactions.
      • Record transactions associated with credit purchases using the gross purchase method for a perpetual inventory system.
      • Record transactions associated with credit sales transactions using the gross sales method for a perpetual inventory system.
      • Record transactions associated with merchandise returns from the seller's and buyer's perspective.
Higher order Thinking Skills: Comprehension, application, and analysis.

Context for Use


saled-exchange
This sales and purchase transaction activity is designed to be used by instructors who favor the traditional approach to teaching principles of financial accounting and coincides with merchandising operations and the related transactions typically covered.

Prerequisite Student Knowledge:
  • Recording journal entries.
  • Interpreting credit terms associated with business-to-business sales/purchases on account.
  • Understanding the components of sales/purchases on account and sales/purchase return transactions.
Implementation options.
The worksheet can be used in a variety of ways:
  1. As an in-class activity with each major section of the worksheet completed by students after the applicable concepts have been covered in class.
  2. As a culminating in-class activity after the required concepts have been covered in class.
  3. As a homework assignment completed outside of class for homework points.

Description and Teaching Materials


Sales and Purchase Transactions Student Activity Worksheet Sales and Purchases Student Worksheet (Microsoft Word 2007 (.docx) bytes Aug14 10)
Sales and Purchase Transactions Solution for Instructors Sales and Purchases Solution (Microsoft Word bytes Aug14 10)

Teaching Notes and Tips


Students enrolled in principles of financial accounting courses need practice applying the concepts associated with sales and purchases on account that include credit terms and this worksheet helps to accomplish this task. For implementation options 1 and 2, the instructor should circulate among the students, acting as a coach, confirming correct responses, and providing hints for incorrect responses.

Students enrolled in principles of accounting courses also need to build self-confidence in their ability to grasp the concepts being learned. Implementation options 1 and 2 help achieve this goal by providing immediate feedback to students.

Assessment


This sales and purchase transactions activity worksheet acts as a formative assessment allowing students to test their understanding of concepts recently covered.

References and Resources


Kimmel, P. D., Weygandt, J. J. & Kieso, D. E. (2009). Accounting Tools for Business Decision Making, 3rd edition, John Wiley & Sons, Inc.