Purchases journal
Purchases journal - is created as creditors subsidiary journal. It is used to record prime entry of credit purchases of merchandise used by companies for trading. For example, if a clothes seller buys furniture, it will not be included in the purchases journal. However, if a clothes dealer buys clothes, it will be entered in the purchases journal. When a company makes purchases of products on account there is no cash transaction, instead, the company is obliged to pay an invoice at a later date. Therefore, purchases made for cash are not contained in the purchases journal. They must be entered in the cashbook[1].
Recording credit purchases
To record purchases made on the account you must credit Accounts Payable account for the amount you need to settle in future, instead of crediting straight Cash at Bank account. Collaterally, you must debit Purchases account in the cost of goods sold category instead of inventory account. Accounts Payable account is also known as Creditors Control account. It is simply control account which includes full amounts[2].
Structure of purchases journal
Purchases journal has a columnar form. Mainly, there are columns named [3]:
- Date - date of the transaction made with the vendor.
- Description - here should be included names of the suppliers and all the major details concern purchased products.
- Invoice No. (optionally) - purchases journal does not need to have an invoice number, as invoices received from vendors will not be in numerical chronology.
- Purchases Debit - Purchases account rises because of money spent on products increase.
- Accounts Payable Credit - Accounts Payable account rises due to increasing liabilities towards creditors.
Posting the purchase journal
Posting is the process of transferring the debit and credit entries from the purchases journal to the proper accounts in the ledger. It can be done day-to-day, weekly or from month to month. However, it depends on company policy. It is important to post every entry from purchases journal into respective accounts in the ledger. It helps the company to see the net effect of transactions made at a particular period on a certain account[4].
Journal vs. Ledger
Main differences between journal and ledger[5]:
- Journal is a special book of the first entry in which every purchase is made before being posted in corresponding accounts in ledger. Ledger is a book of final entry.
- In the journal, each entry is recorded daily in chronological order and in the analytical record in the ledger.
- Recording transactions procedure is named in the journal - journalizing and in the ledger - posting.
Examples of Purchases journal
- Purchases journal can be used to record the purchase of raw materials or goods used in production. For example, a company that manufactures shoes may record the purchase of leather, soles, and buckles in the purchases journal.
- It can also be used to record the purchase of merchandise for resale. For example, a clothing store may record the purchase of shirts, pants, and dresses in the purchases journal.
- The purchases journal can also be used to record the purchase of supplies used in the company's operations. For example, a restaurant may record the purchase of paper towels, napkins, and cleaning supplies in the purchases journal.
- Finally, the purchases journal can be used to record the purchase of services. For example, a business may record the purchase of legal services, accounting services, or consulting services in the purchases journal.
Advantages of Purchases journal
Purchases journal is a great tool for tracking credit purchases of merchandise and tracking the flow of goods in and out of the business. It offers the following advantages:
- It helps to monitor the company's expenses, including the costs of materials, labor and other expenses associated with purchasing goods.
- It provides an accurate record of the exact date and amount of each purchase.
- It simplifies the task of creating an inventory report.
- It helps to track the suppliers and other creditors.
- It helps to identify the type of goods purchased and the prices paid.
- It helps to keep an organized record of all purchases and make sure that all bills are paid on time.
Limitations of Purchases journal
The purchases journal has several limitations that should be considered when using it. These include:
- It is not suitable for recording purchases of assets or inventory that are not related to a company's trading activities.
- It does not provide an accurate record of the cost of purchases, as it does not include any discounts or other adjustments to the purchase price.
- It does not provide detailed information about the supplier or the terms of the purchase.
- It cannot be used to track individual purchase orders or invoices.
- It does not provide any information about the payment of the purchase or any credit terms associated with it.
There are a few other ways to utilize a purchases journal depending on the type of business:
- A purchases journal can be used to record information on the purchase of services, such as the purchase of professional services or employee wages.
- This journal can also be used to document the purchase of assets, such as land, buildings, or equipment.
- Additionally, the purchases journal can be used to record the purchase of raw materials used in the production of goods or services.
In summary, the purchases journal is a record of all purchases made by a company, including services, assets, and raw materials. It is an important tool for tracking the company’s expenses and purchases.
| Purchases journal — recommended articles |
| Purchases ledger — Book of original entry — Purchase account — Purchase ledger — Sub ledger — Purchase invoice — Sales journal — Accounting documents — Sales ledger |
References
- Bienias Gilbertson C., W. Lehman M., Gentene D. (2013) Century 21 Accounting: Multicolumn Journal, Introductory Course, Chapters 1-17, Cengage Learning, 10
- Caldwell R. (2010) Learn Bookkeeping in 7 days: Don’t Fear the Tax Man, John Wiley&Sons
- Epstein L. ( 2014) Bookkeeping For Dummies, John Wiley & Sons, 2
- Fundamentals of Accounting and Auditing (2014), The Institute of Company Secretaries of India, paper 4
- Kasi Reddy M., Saraswathi S. (2007) Managerial Economics and Financial Accounting, PHI Learning Pvt. Ltd., New Delhi
- Tulsian P.C. (2009) CBSE Accountancy 11, Ratna Sagar, Delhi
Footnotes
Author: Anna Woroń
