Purchases journal

What is the Purchases journal? – Definition

Purchases journal is a special journal that is used to record the merchandise purchased on account. The entries in this journal are made on the basis of the invoice received from the supplier at the time of purchase of merchandise. Other names used for the purchases journal are “purchases book” and “purchases day book”.

Explanation

The purchases journal, sometimes called the credit purchases Journal, is used mainly to record merchandise inventory purchases on credit. If these are the only transactions recorded in the purchases journal, then the journal would be similar to the one shown in the below example. Purchase invoices are used to enter data into the journal. We are assuming that a periodic inventory system is in use and that all purchases are recorded at their gross amounts. Therefore, the Amount column represents a credit to Accounts Payable and a debit to Purchases at the full invoice price.

Example

Format of Purchases journal

The purchase journal has five columns as shown in the format below:

Format of purchases journal

(1) Date column is used to record the date of purchase of merchandise.

(2) Accounts credited column is used to record the name of business concern from whom merchandise are purchased on account.

(3) Invoice number column is used to record the invoice number for reference.

(4) Posting reference column is used to write the account number while posting into ledger. It indicates that posting has been made.

(5) Amount column is used to record the amount of invoice.

 Posting the purchases journal

The entries from purchases journal are posted to accounts payable subsidiary ledger and general ledger. The procedure is given below:

  1. The amounts from purchases journal are posted as credits to individual suppliers’ accounts in accounts payable subsidiary ledger. This posting is made immediately after an entry has been made in the purchases journal.
  2. At the end of each month (or as appropriate) the amount column of purchases journal is totaled and posted as debit to purchases account and credit to accounts payable account in general ledger.
  3. The sum of all postings to accounts in accounts payable subsidiary ledger is always equal to the amount posted to accounts payable account in general ledger.

Postings from the purchases journal follow the same pattern as that of postings from the sales. Each day the individual purchases should be posted to the vendor’s account in the accounts payable subsidiary ledger. At the end of the month, the Amount column in the journal is totaled, and this amount is posted as a debit in the general ledger Purchases account and as a credit in the general ledger Accounts Payable account.

Finally, at the end of the month, a list of the individual subsidiary accounts is made. This list is often called accounts payable trial balance or a schedule of accounts payable. The balance in this list is compared with the balance in the general ledger Accounts Payable account. This procedure helps verify that all the postings have been correctly made.

Consider the following examples.

Example

The transactions completed by XYZ trading company for the month of January 2016 are listed below:

Jan. 02: Purchased merchandise on account from S & Co. for $900, invoice No. 105.
Jan. 06: Purchased merchandise on account from A & Co. for $3,200 , invoice No. 240.
Jan. 08: Purchased merchandise on account from Z Brothers for $360, invoice No. 115.
Jan. 15: Purchased merchandise on account from S & Co for $800, invoice No. 305.
Jan. 25: Purchased merchandise on account from S & Co for $700, invoice No. 395.
Jan. 31: Purchased merchandise on account from Z Brothers for $300, invoice No. 345.

Required:

  1. Record the above transactions in purchases journal.
  2. Post entries from purchases journal to accounts payable subsidiary ledger
  3. Post purchases journal to general ledger.
  4. Prepare the schedule of accounts payable.

Solution

(1). Purchases journal

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(2). Accounts payable subsidiary ledger

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(3). General ledger

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(4). Schedule of accounts payable

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