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.
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.
Structure of purchases journal
Purchases journal has a columnar form. Mainly, there are columns named :
- 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.
Journal vs. Ledger
Main differences between journal and ledger:
- 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.
- 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
- M. Kasi Reddy, S. Saraswathi 2007, p. 327
- R. Caldwell 2010, p. 106
- L. Epstein 2014, p. 62-63
- P. C. Tulsian 2009, p. 5.46
- Fundamentals of Accounting... 2014, p. 30
Author: Anna Woroń