Purchase ledger

From CEOpedia | Management online

The Purchase Ledger, sometimes also called the creditors ledger, is a record off every wares and services you have bought for your business. A computerised purchase ledger will obviously be anticipated to keep the purchase ledger up to date and of course, also it ought to be able to output different reports required by the user. In fact, a computerised purchase ledger is pretty much the same as a computerised sales ledger, excepting that it is a kind of mirror reflection as it deals with acquisitions rather than sellings [1].

This may contains for instance [2]:

  • stock acquisitions
  • phone spendings
  • stationery purchases

Inputs to a purchase ledger system

Details to be registered in the purchase ledger contain [3]:

  • quantity of invoices
  • carrier's name
  • date of carrier's invoices
  • quantity of Goods and Service Tax (GST) - if appropriate
  • date invoices was paid
  • adjustments

Processing in a purchase ledger system

The essential action carried on updating the purchase ledger is adjusting the quantities of unsettled on the supplier accounts. These quantities will show cash owed to the suppliers. The computer will conform the owed brought-forward balance by summing or substracting the worth of dealings as you tell it to. The caried-forward balance starts out the new balance saved on the carrier's account. This achievements is the same to updating the accounts in the sales ledger, but that the sales ledger balances are debits, in other words- trade receivables, and the purchase ledger balances are credits, in other words - trade payables [4].

A purchase ledger’s useful facilities

A purchase ledger package can offer a few of useful facilities including the following [5]:

  • Printing a prediction of money requested for payments in the near future
  • Printing a list of invoices due for payment
  • Keeping track of what you owe you carriers, and of how much has been paid against detailed invoices
  • Printing bank transfer advices and cheques for any invoices checked for payment

Examples of Purchase ledger

  • Purchase Invoice: A purchase invoice is a document that records the purchase of a product or service by a customer from a supplier. It typically includes the date of purchase, a list of items purchased, the quantity and cost of each item, the total amount due, and any applicable taxes.
  • Payment Ledger: A payment ledger is a document that tracks payments made to suppliers and other vendors. It contains the date of payment, the amount of the payment, the bill number or invoice number being paid, and any additional information relevant to the payment.
  • Purchase Order: A purchase order is an official document that is sent by a company to a vendor in order to purchase a specific product or service. It includes the item being purchased, the quantity, the requested delivery date, and the payment terms.

Advantages of Purchase ledger

  • A purchase ledger is an efficient way to track business purchases, as it provides a detailed record of all the goods and services that have been bought.
  • It can also help to identify any discrepancies between the amount of money that was expected to be spent and the actual amount spent.
  • The ledger provides a clear audit trail of all purchases, which can be used to verify and support any claims for tax deductions or other expenses.
  • Having a purchase ledger also helps to ensure that all invoices are paid on time and that suppliers are not overpaid.
  • By keeping an up-to-date purchase ledger, businesses can identify any potential areas of overspending, which can then be addressed in order to reduce costs.
  • Additionally, having a purchase ledger can help to improve relationships with suppliers and vendors, as it acts as a record of all transactions and payments.

Limitations of Purchase ledger

  • The purchase ledger is only a tracking of the money you have paid out to your suppliers, it does not record any of the goods you have purchased.
  • The purchase ledger does not record any of the terms of the purchase such as discounts, payment terms, or other conditions that may have been agreed.
  • The purchase ledger only records the current financial information and does not track any of the historical information.
  • The purchase ledger does not provide any insight into the quality of the goods and services purchased or the relationships with suppliers.
  • The purchase ledger is limited in its ability to predict future needs based on past data. This means that it is not possible to use the purchase ledger to anticipate future supply shortages or to plan for future expenditure.

Other approaches related to Purchase ledger

  • Aged Creditor Report: This report is used to keep track of how much a business owes to its creditors, based on the length of time they have been unpaid. It can be used to manage the payment of invoices and identify any overdue payments.
  • Remittance Advice: This is a document sent with payments that explains what the payment is for and is used to reconcile the purchase ledger.
  • Supplier Statements: Supplier statements are used to compare what the supplier says has been invoiced to the business in comparison to the business’s own records.
  • Supplier List: A supplier list is used to keep a record of all suppliers used by the business, including contact details and payment terms.
  • Supplier Invoices: Supplier invoices are used to record the costs of goods and services purchased and to check them against the supplier statements.

In summary, the Purchase Ledger is a record of every acquisition made by a business and is often managed using a computerised system. Other approaches related to the Purchase Ledger include Aged Creditor Reports, Remittance Advice, Supplier Statements, Supplier List, and Supplier Invoices. These approaches are used to manage payments and reconcile the Purchase Ledger.

Footnotes

  1. ↑ BPP Learning Media, (2010), p. 11
  2. ↑ Worthington K, (2006), p. 3
  3. ↑ Worthington K, (2006), p. 3
  4. ↑ BPP Learning Media, (2010), p. 11
  5. ↑ Stang N, Blewett F, (2014), p. 164


Purchase ledger — recommended articles
Sales journal — Sales ledger — Purchase account — Purchase invoice — Debit Note — Purchases ledger — Book of original entry — Purchases journal — Purchase returns and allowances

References

Author: Paulina Matysiewicz

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