Accountancy · Ch 3 — Recording of Transactions - II
Purchases (Journal) Book
Purchases (Journal) Book
The Purpose of the Purchases Book
All credit purchases of goods are recorded in the purchases journal. Cash purchases are recorded in the cash book, not here. The key point is that this book is only for goods — items that the business buys for resale in its normal course of trade. Purchases of assets like office equipment, furniture, or a building are never recorded in the purchases book. If those assets are bought on credit, they go into the journal proper; if bought for cash, they go into the cash book.
The source documents for entries in the purchases book are the invoices or bills that the firm receives from its suppliers. Entries are made for the net amount of the invoice — that is, the amount after deducting any trade discount. Trade discount and other invoice details need not be recorded in this book.
Format of the Purchases (Journal) Book
The standard format has five columns: Date, Invoice No., Name of Supplier (Account to be credited), L.F. (Ledger Folio), and Amount.
| Date | Invoice No. | Name of Supplier (Account to be credited) | L.F. | Amount (₹) |
|---|---|---|---|---|
The column heading "Name of Supplier" is also labelled "Account to be credited" because each supplier is a creditor — and when we record a credit purchase, the supplier's personal account is credited in the ledger.
How Entries are Recorded: A Worked Example
Consider the following transactions of M/s Kanika Traders for August 2017.
Aug. 4 — Purchased from M/s Neema Electronics (invoice no. 3250): 20 Mini-size T.V. @ ₹2,000 per piece, 15 Tape recorders @ ₹12,500 per piece. Trade discount on all items @ 20%.
Aug. 10 — Bought from M/s Pawan Electronics (invoice no. 8260): 10 Video cassettes @ ₹150 per piece, 20 Tape recorders @ ₹1,650 per piece. Trade discount @ 10% on purchases.
Aug. 18 — Purchased from M/s Northern Electronics (invoice no. 4256): 15 Northern stereos @ ₹4,000 per piece, 20 Northern colour T.V. @ ₹14,500 per piece. Trade discount @ 12.5%.
Aug. 26 — Purchased from M/s Neema Electronics (Invoice No. 3294): 10 Mini-size T.V. @ ₹1,000 per piece, 5 Colour T.V. @ ₹12,500 per piece. Trade discount @ 20%.
Aug. 29 — Bought from M/s Pawan Electronics (Invoice No. 8281): 20 Video cassettes @ ₹150 per piece, 25 Tape recorders @ ₹1,600 per piece. Trade discount @ 10% on purchases.
Calculating the Net Amount for Each Invoice
Aug. 4 (Neema Electronics)
- 20 Mini T.V. @ ₹2,000 = ₹40,000
- 15 Tape recorders @ ₹12,500 = ₹1,87,500
- Total list price = ₹2,27,500
- Trade discount @ 20% = ₹45,500
- Net amount = ₹1,82,000
Aug. 10 (Pawan Electronics)
- 10 Video cassettes @ ₹150 = ₹1,500
- 20 Tape recorders @ ₹1,650 = ₹33,000
- Total list price = ₹34,500
- Trade discount @ 10% = ₹3,450
- Net amount = ₹31,050
Aug. 18 (Northern Electronics)
- 15 Stereos @ ₹4,000 = ₹60,000
- 20 Colour T.V. @ ₹14,500 = ₹2,90,000
- Total list price = ₹3,50,000
- Trade discount @ 12.5% = ₹43,750
- Net amount = ₹3,06,250
Aug. 26 (Neema Electronics)
- 10 Mini T.V. @ ₹1,000 = ₹10,000
- 5 Colour T.V. @ ₹12,500 = ₹62,500
- Total list price = ₹72,500
- Trade discount @ 20% = ₹14,500
- Net amount = ₹54,000
Aug. 29 (Pawan Electronics)
- 20 Video cassettes @ ₹150 = ₹3,000
- 25 Tape recorders @ ₹1,600 = ₹40,000
- Total list price = ₹43,000
- Trade discount @ 10% = ₹4,300
- Net amount = ₹38,700
The Purchases Book as Recorded
| Date | Invoice No. | Name of Supplier (Account to be credited) | L.F. | Amount (₹) |
|---|---|---|---|---|
| 2017 Aug. 4 | 3250 | Neema Electronics | 1,82,000 | |
| Aug. 10 | 8260 | Pawan Electronics | 31,050 | |
| Aug. 18 | 4256 | Northern Electronics | 3,06,250 | |
| Aug. 26 | 3294 | Neema Electronics | 54,000 | |
| Aug. 29 | 8281 | Pawan Electronics | 38,700 | |
| Aug. 31 | Total | 6,12,000 |
Notice that the total of the purchases book for the month is ₹6,12,000.
Posting from the Purchases Journal to the Ledger
Posting is done at two levels:
Individual suppliers' accounts — These are posted daily (or as frequently as needed) to the credit side of each supplier's personal account in the ledger. The supplier is a creditor; when goods are bought on credit, the supplier's account is credited because the business owes them money.
The purchases account — The monthly total of the purchases book is posted to the debit of the purchases account in the ledger. This is normally done on a monthly basis. However, if the number of transactions is very large, the total may be posted at a more convenient interval — daily, weekly, or fortnightly.
Ledger Accounts from the Example
Neema Electronics (Creditor) — Cr. side
| Date | Particulars | J.F. | Amount (₹) | Date | Particulars | J.F. | Amount (₹) |
|---|---|---|---|---|---|---|---|
| 2017 Aug. 4 | Purchases | 1,82,000 | |||||
| Aug. 26 | Purchases | 54,000 |
Pawan Electronics (Creditor) — Cr. side
| Date | Particulars | J.F. | Amount (₹) | Date | Particulars | J.F. | Amount (₹) |
|---|---|---|---|---|---|---|---|
| 2017 Aug. 10 | Purchases | 31,050 | |||||
| Aug. 29 | Purchases | 38,700 |
Northern Electronics (Creditor) — Cr. side
| Date | Particulars | J.F. | Amount (₹) | Date | Particulars | J.F. | Amount (₹) |
|------|-------------|------|-------------|------|-------------|------|-------------| …