Author: Bartłomiej Borówko
Purchases ledger is called the part of the account structure that saves documented notes of the whole purchases, that were created by the forces of the company and that costs, that were paid back for that purchases. The phrase “ledger” is a mention to that time, during which accountancy management was held in the big books, the name of which was ledger (M. Banks 2005, p.68).
The role and function of purchases ledger
The another name of the control accounts is - the total accounts. In the case when the trial balance cannot be balanced and it is hard to definite the mistake, accounting records should be instantly reviewed. Usually it takes some while of time for doing that. The control procedure might be finished faster when sales ledger account (that includes the records about the accounts of the obligors) and purchased ledger account (that includes the records about the accounts of the obligee) exist. They operate in a role of the verification on the particular account inside such ledgers. But the same as the trial balance, that accounts have only the ability to verify the arithmetical precision: mistakes like lapse or commission cannot be uncovered by these control accounts (C. Coucom 2012, p. 221).
Usage of the purcheses ledger
Sometimes purchase bookings can be created on the material, that was carbonized. That's why exemplar on the top is provided for the distributor. The another exemplar should be hold in the file. Moreover, purchase orders also can be made and saved at the computer programs, and transmitted to the distributor in the electronic way. It can be done both: by sending an email or by electronic information exchange. The purchasing structure supplies the entrance for the purchase ledger at the invoices structure. Except this invoices will be connected with the supply management and production functions of the company which provides or produces the items. The raw materials and items that were bought will enhance the number of the goods in the stock. The stock management or producing schemes will estimate in what time will appear the need to order items again (in the moment when the reserve is used). But whole functions inside the company will require items of some definitive types. That's why the connection among the purchasing set and the big part of the functions will appear inside the company. Purchasing also takes the responsibility for creating agreement documents of the services delivery(M. Banks 2005, p.68).
The invoices are counted in consistent sequence, following to which that accounts are obtained, and opened in the book of the purchases at the same sequence. Specific columns are maintained. They are created for the whole significant factors, that are connected with the accounts, for example, the departments that were engaged in that purchase. The finish number of columns that represent “debit” side must be the same as the whole side of the “credit” data(J. W. Baker 1952, p. 202).
Sales ledger and purchases ledger
Sales ledger monitor account looks like the account of the obligor. However that account maintains operations that are connected to all obligors, not only for one of them. To create a sales ledger control account, should be data, that is provided in the journal of the first records(C. Coucom 2012, p. 222).
Purchases ledger control account has the familiar functions and aims as the sales ledger control account. That account operates as a verification for the particular accounts of the obligee. It has to be made irrespectively and not made on the source of the information provided by individual obligees’ accounts. The sales ledger control account should be balanced and composed on the finish of the financial period (usually it is on the over of the month). The whole number of the balances on every separated obligees’ accounts must be the same as in the monitor account. In the situation when there is a difference between them, it means that there is a mistake in some of that accounts and review should be continued(C. Coucom 2012, p. 224-225).
The verification usually discovers the reasons. Later for verification whether the discovered element lead to the break of the balance, reconcilement is done(A. Sangster, F. Wood 2008, p. 374).
Advantages of the control accounts
If the complement system of the accounting documented notes is kept, it should be often a regulatory accounts for purchases ledger, and also, for sales ledger ready. Pluses of creating such accounts are(C. Coucom 2012, p. 221):
- That accounts are able to help in finding the mistakes in the situation when it is impossible to balance the trial balance.
- That accounts are the evidence of the arithmetical precision toward that ledgers they monitor.
- The balance mentioned in them must be the same as the number of whole receivables and whole number of the payables. That's why that data is accessible instantly.
- Financial declarations project is able to be ready for the little period of time. The reason of that lies in the balances that are supplied due to that control accounts.
- That accounts contribute in the fraud decreasing. Control accounts must be made by people, that were not engaged in creating the records in that exactly ledgers.
Examples of Purchases ledger
- A Purchases ledger is a type of accounting record used to track the purchases of goods or services. It is used to record the amount of each purchase, the date of the purchase, the type of purchase, and the supplier or vendor. This ledger can be used by businesses to track the cost of goods over a period of time.
- The Purchases ledger is also used to record the amount of taxes paid on each purchase. This information is used to calculate the total cost of goods purchased and the amount of taxes due. It is also used to track the amount of inventory on hand, as well as any discounts or credits received from vendors.
- In a retail setting, the Purchases ledger can be used to track the cost of inventory purchased from vendors. The ledger will include the date of purchase, the type of product purchased, the cost of the product, and the supplier or vendor from whom the product was purchased. The Purchases ledger can also be used to record any discounts received from vendors or suppliers.
- In a manufacturing setting, the Purchases ledger can be used to track the cost of raw materials purchased from suppliers. The ledger will include the date of purchase, the type of material purchased, the cost of the material, and the supplier or vendor from whom the material was purchased. The Purchases ledger can also be used to record any discounts received from vendors or suppliers.
Limitations of Purchases ledger
Purchases ledger is an important accounting tool that records all purchasing transactions of a business. However, it has its own set of limitations which must be taken into consideration to ensure accurate accounting. The following are the main limitations of the purchases ledger:
- Inaccuracies in data entry - Errors in data entry can occur due to human errors, such as typos, or due to faulty calculations. This can lead to inaccurate records in the purchases ledger and can have serious implications for the accuracy of the financial statements.
- Difficulty in tracking supplier payments - The purchases ledger is only able to record the purchases made from a supplier, but not the payments made to them. Thus, it can be difficult to track supplier payments and ensure that the books are balanced.
- No insight into supplier performance - The purchases ledger does not provide any insight into a supplier’s performance. Thus, it is difficult to evaluate a supplier’s reliability and determine if they are providing quality goods or services.
- Inability to detect fraud - The purchases ledger does not have the capability to detect fraud or suspicious transactions. This can lead to inaccurate accounting and can have serious financial implications for the business.
Purchases ledger is an accounting record that records debit transactions related to the purchase of goods or services. Other approaches related to the Purchases ledger include:
- Accruals and Prepayments – this approach requires recording of all purchase related liabilities, regardless of whether the payment is made in the same period or not. Accruals include items such as legal fees and utility bills, while prepayments include items such as rent and insurance.
- Payment Terms and Discounts – this approach requires recording of all payment terms and discounts associated with purchases. It is important to note that discounts may be offered for early payments and should be taken into consideration when recording the transactions.
- Depreciation – this approach requires recording of all assets purchased that are subject to depreciation. It is important to note that the depreciation should be calculated on a periodic basis and the amount should be recorded in the Purchases ledger.
- Tax Treatment – this approach requires recording of all taxes associated with purchases such as sales tax and VAT. It is important to note that the tax rate and amount should be recorded in the Purchases ledger.
In summary, Purchases ledger is an accounting record that records debit transactions related to the purchase of goods or services, and other approaches related to the Purchases ledger include Accruals and Prepayments, Payment Terms and Discounts, Depreciation and Tax Treatment.
- Baker J. W.,(1952), 20th century bookkeeping and accounting, South Western Publishing, Cincinnati, p. 202.
- Banks M.(2005), OCR AS GCE Applied ICT Double Award, Heinemann, Oxford, p. 68.
- Carlton S. and others (2012), Accounting, Google eBook: Building Business Skills, John Wiley & Sons, Brisbane, p. 5- 94.
- Coucom C. (2012), Cambridge O Level Principles od Accounts, Cambridge University Press, Delphi, p. 221-225.
- Edwards J., Hermason R., Maher M. (2010), Accounting Principles: A Business Perspective, Financial Accounting. Chapters 1 - 8, Textbook Equity, p. 262-272.
- Hart J. ,Wilson C., Fergus C. (2012), Management Accounting: Principles & Applications, Pearson Higher Education AU, Frenchs Forest, p. 112 - 145.
- Sangster A., Wood F.(2008), Frank Wood’s Business Accounting UK GAAP, Pearson Education, Harlow, 374.