1.0
INTRODUCTION
In your previous
studies, you have learnt that in any business, the number of cash and bank
transaction is quite large. Hence, the firms always maintain a separate book
called Cash Book to record them. Similarly, the transactions relating to
purchase of goods are also large in number and
they take place too frequently.
It is, therefore, considered desirable to maintain separate book for purchases
also. In this note, you will learn how this book is kept.
2.0
OBJECTIVES
After studying this note,
you should be able to:
• Explain what is
meant by purchases.
• Post transaction in
various books relating to purchases.
• Prepare purchases
and purchases return journal and post them into ledger.
3.0
MAIN CONTENT
3.1
Purchases Journal
The Purchases Journal
(also called Purchases Book) is used for recording credit purchases of goods
and raw materials. Note that the credit purchases of fixed assets like
furniture, vehicles, etc are not recorded in this book. They are to be recorded
in Journal proper about which you will learn in this Note. The Purchases
Journal is also called Purchases Book, Purchases Day Book and invoice Book.
When goods are purchased on credit, you will receive a bill from the seller.
Such a bill is called 'invoice'. It contains the details pertaining to the
quantity, price, trade discount, total account, etc. It is generally prepared
in duplicate. The original is given to the buyer and the duplicate is retained
by the seller. The entries in the purchase journal are made on the basis of the
purchase invoice received. Although the invoice bears a number but the buyer
records his own serial number to all Inward Invoices for easy reference. It is
this serial number which will be entered in the invoice number column of the
purchases journal.
Purchases Journal
The transactions
recorded in the Purchase Journal are to be posted to their respective personal
account in the ledger. When a purchase is made on credit, the supplier becomes
the creditor to the firm. Hence, every credit purchase recorded in the
purchases journal is posted on the credit side of the personal account of the
supplier by writing ‘By Purchases Account’ in particulars column. The purchases
journal is totalled periodically, say, weekly or monthly. This total is posted
to the
debit side of
Purchases Account in the ledger by writing 'to sundries - as per Purchases
Journal'. Thus you observe that posting of Purchases Journal involves two
steps:
i) Posting each
purchase to the credit of the respective personal accounts of suppliers and
respective personal accounts of suppliers; and
ii) Posting the total
purchases to the debit of the Purchases Account. With this, the double entry
for credit purchases is complete.
3.2
Purchases Returns Journal
In any business,
sometimes goods purchased may have to be returned to the supplier either partly
or fully. This may become necessary when they are found to be defective,
damaged in transit, inferior quality, short weighed, received too late or not
in conformity with the order given. If the number of such returns is small they
can be recorded in the journal itself. But, if it is large, a separate book
called "Purchases Return Journal" should be used for recording these
transactions. This book is called "Return Outwards Journal" or
"Purchases Returns Book". The proforma of a Purchases Returns Journal
is given below
Purchases Return Journal
When goods are
returned to the supplier, a statement called 'Debit Not' is sent to him
intimating that his account has been debited on account of the goods returned.
The debit note also contains particulars and the value of goods returned. It is
also prepared in duplicate. The original sent to the supplier and the duplicate
is retained by the firm. The entries in the Purchases Return Journal are made
on the basis of the copies of debit notes issued.
The debit notes bear
a serial number which is duly recorded in the third column of the Purchases
Return Journal. While recording the amount of purchases return, you must
remember that if the original purchases involve some trade discount, it is also
adjusted in the value of goods returned. The transactions recorded in the
Purchases Return Journal are to be posted to their respective personal accounts
in the ledger. Separate account in the name of each supplier already exists in
the ledger (opened at the time of purchase). The entries made in the purchase
return journal will be posted to the debit of each suppliers account by writing
`To Purchases Return Account'. The total of the Purchases Return Journal is
posted to the credit side of the 'Purchases Return Account' in the ledger by
writing 'By Sundries — as per Purchases Return Journal'.
Exercise
Write
up the Purchases Day Book of Mensha for the following transactions:
April 1 Bought goods
on credit from Idowu N40.00
April 2 Sold goods on
credit to Dada N20.00
April 2 Bought goods
on credit from Dupe N50.00
April 3 Sold goods on
credit to Wale N60.00
April 4 Bought goods
on credit fro Idowu N40.00
April 5 Bought goods
on credit from Kemi N60.00
April 5 Sold goods on
credit to Wale N45.00
April 6 Sold goods on
credit to Joke N30.00.81
4.0
CONCLUSION
Firms generally
maintain four separate books for recording credit transactions relating to
goods, among these books are Purchases Journal and Purchases Return Journal.
These books are dealt with in this note, we shall be dealing with the rest
later.
5.0
SUMMARY
Like the Sales Day
Book, Purchases Day Book could be called Purchases Book or Purchases Journal.
It is used to collect purchases of goods on credit till the end of the set time
interval when the total figure for purchases will be debited to the Purchases
Account in the general ledger. The individual accounts of the supplier are
credited with their respective credits.
The ruling is similar to that of the
Sales Day book and entries are made there in like manner but from the Sales
Invoice of the supplier, it is only purchaser of goods that keeps Purchases Day
Book.
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