Purchase account – emanate from the purchase ledger an account in which money spending on some goods and services in an appropriate period is report on the debit side.
Purchases on account
Purchase on account is a payment method in which goods are acquired and payment is deferred (C. Gilbertson, M. Lehman, 2012, p. 236). Purchases, in other words the cost account, is used first and foremost in order to record the merchandise purchased. Other purchased items, for example supplies, should not be recorded in a purchases account but in the other account, like Supplies (L. Epstein, 2010, p. 294). Merchandise as well as other purchased goods are reported and recorded at the price that has been agreed upon in a moment when the transaction took place. In the case, where the actual figure paid for buying some merchandise or other goods or items is applied the accounting concept called Historical Cost. Some of businesses buy on account only from a several vendors keep general ledger separate for all vendors. It is important to summarize the total amount owed to each of vendor in a single general ledger account to avoid an enormous general ledger (C. Stickney, 2010, p. 406).
The merchandise purchases for resale not belong to spending. There are classified as purchases. This term has specialized, limited meaning. It involves only the purchase of merchandise for resale. Purchases of merchandise are ascribed in the purchases normal ledger account and afterwards is recorded as a cost of goods sold account, which is defined as actual merchandise cost selling to customers in a single accounting period. The purchases account is used in computing cost of goods sold as only one element (L. Walther, 2010, p. 29).
- An example: The company’s car tires or paper towel for coffee place would not be regarded as purchases (except if you bought these goods/items in order to sale). The tires and paper towels would be classified as spending if you bought them for using by your own business (B. Needles, 2006, p. 297).
- A liability account titled Accounts Payable is summarizing the amount owed to all of vendors Accounts Payable own a usual credit balance, in which the accounts payable account decreases by a debit and increases by credit (M. Schaeffer, 2004, p. 283).
- Epstein L. (2010),Small business accounting, Wiley Pathways, p. 294.
- Gilberson C.,Lehman M. (2012),Century 21 Accounting: Multicolumn Journa, South-Western, p. 236.
- Needles B.,Powers M. (2007),Financial Accounting: Media Enhanc, Houghton Mifflin Company, p. 297.
- Schaeffer M. (2004),Accounts Payable: A Guide to Running an Efficient Department, IOMA, p. 283.
- Stickey C.,Weil R.,Schipper K. (2010),Financial Accounting: An Introduction to Concepts, Methods ad Uses, South-Western, p. 406.
- Walther L.,Skousen C. (2010),Managerial and Cost Accounting, p. 109.
Author: Patrycja Wojcik