Purchase Journal Entry – Accounts

Meaning of  Purchase

Purchase means to acquire something from someone either by making the payment at that time itself or at a later date. To record the purchases made by the businesses during the year, a purchase (journal) book is maintained which records purchases arising from either of the two situations given below –

Purchase this could be : –

  • In cash – this happens when payment for purchase is made immediately when the goods are bought.
  • In credit – this happens when payment for purchase is made at a later date then the date on which purchase was made. when the goods are bought




Further, the transaction of Purchase could either relate to acquiring of an Asset, or any trading goods. The purchase journal entries  can therefore be divided in the following four categories : –

  • Purchase of trading goods on cash
  • Purchase of trading goods on credit
  • Purchase of an Asset for cash

Purchase of an asset on credit

Each of these four are discussed as under : –

Purchase Journal Entry Questions –  Number 1 – Cash Purchases of goods

Question 1:

What would be the Journal Entry for Purchase of goods amounting to Rs. 10,000 in Cash ?

Explanation:

Since Purchase of goods is an expense, so, Purchases A/c would be debited, because according to the Rules of Debit and Credit, an expense A/c is debited .

Upon payment of goods purchased in Cash, cash balance reduces, therefore the asset account is credited according to the Rules of Debit and Credit. So Cash A/c would be credited,  as a reduction in an Asset account is credited.

Hence the  entry would be : –

Purchases A/c Dr. 10,000

To Cash A/c 10,000



Purchase Journal Entry Questions –  Credit Purchase Journal Entry

Question 2:

What would be the Journal Entry for Purchase of goods amounting to Rs. 10,000 from ABC Co. on credit ?

Explanation:

Since Purchase of goods is an expense, so, Purchases A/c would be debited, because according to the Rules of Debit and Credit, an expense A/c is debited .

Further, upon acquiring goods in credit from ABC Co., the company incurs a liability towards ABC Co. or in other words the liability of the company is increased.

When a  liability is  increased, the liability   account is credited ,   as according to the Rules of Debit and Credit,   an increase in liability account is credited.

Hence the correct entry is:

Purchase A/c Dr. 10,000

To ABC Co. A/c 10,000




Purchase Journal Entry – Asset Purchased in Cash

Question 3:

What would be the Journal Entry for Furniture purchased amounting to Rs. 10,000 in Cash ?

Explanation:

Upon furniture purchase, the value of an asset is increased and according to the Rules of Debit and Credit, an increase in an asset   A/c is debited .

Further, cash is reduced according to the Rules of Debit and Credit. So Cash A/c would be credited.

Hence the correct entry is:

Furniture A/c Dr. 10,000

To Cash A/c 10,000

Purchase Journal Entry – Credit Purchase of Asset-I

Question 4:

What would be the Journal Entry for Furniture purchased amounting to Rs. 10,000 from Nived?

Explanation:

Purchase of Furniture increases the value of an asset and according to the Rules of Debit and Credit, an increase in an asset A/c is debited .

Further, the company incurs a liability towards Nived and when a  liability is  increased, the liability  account is credited.Hence account of Nived would be credited.

Hence the correct entry is:

Furniture A/c Dr. 10,000

To Nived A/c 10,000

 

Therefore, a purchase (journal) book is maintained to keep a clear cut track of all the purchases made during the year.

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