What is a Purchases Journal? Meaning and Format

What is a Purchases Journal? Meaning and Format

There are service and merchandise businesses. Today, we are going to talk about merchandise businesses and how they use purchases journal in their bookkeeping system. But before we continue, let’s recall that merchandise is the item that you are going to use and sell.

Just like a customer, businesses can come and buy things on credit. When you go to your suppliers, you do not always have the cash to pay for the goods or choose to use it for other purposes. Thus, if the supplier agrees, you can purchase whatever you are buying on credit. These are better known as credit purchases. When it comes to books of accounts, credit purchases are first recorded in a special daybook or a special journal. It is known as a Purchases Journal.

Definition

So, what is a Purchase journal? This is a subsidiary journal that you will also find referred to as a Purchase book. It is the book of original entry for all credit purchases. Note that cash purchases are recorded in another accounting journal that is set up specifically for that type of transactions.

The Purchases account is going to act as a cost account (very similar to what an expense account would act like) with a debit normal balance and a credit side will show a decrease in this account. So when purchasing merchandise, this is when the double-entry gets started – first, by crediting the company that has given you those goods on credit, and the corresponding double-entry is finished in the purchases account in the general ledger.

What is a Purchases Journal? Meaning and Format

Format

Above, you can see how the Purchases journal looks like. However, every company might adjust the columns as needed. Commonly, it would include the date of the record and/or invoice, the name of the company that a business purchased from as well as the payment terms. In addition, the journal will have the name of the account credited, which is always an Accounts Payable, and the account(s) that are debited, such as Inventory, Supplies, and a Miscellaneous or Others column.

The source document for the Purchases journal is usually a purchase invoice. So, anytime you see a purchase invoice, you are going to ultimately be thinking this is purchasing merchandise. It is going to have quantity, descriptions, unit price, and the amount, including total. You might also some terms like 2/10 net 30, which are payment terms and discounts, if any.

What is a Purchases Journal? Meaning and Format

Let’s record the purchase invoice sent by Acme Supplies Inc. It looks like the company purchased office supplies, so we are going to debit the Office Supplies column for the total amount of $8,855.03. If the bookkeeper decided to record Nescafe powder and disposable cups separately, for example, under an Office Food account, we would have two columns: one would show the total amount of Office Supplies and the other the total amount of Office Food.

The account we would need to credit would be Accounts Payable – Acme Supplies Inc. because this is the company we owe money to. The amount being credited will also equal $8,855.03. In addition, we will need the invoice date (4/23/19) and payment terms (net 30). Below, you can see what our Purchases Journal will have recorded for this purchase.

Purchases Journal

Invoice Date

Supplier’s Account Credited

Payment Terms

PR

Accounts Payable – CR

Inventory – DR

Office Supplies – DR

Other – DR

4/29/19

Acme Supplies Inc.

n/30

$8,855.03

$8,855.03

Totals

$8,855.03

$8,855.03

Quentin Dcon

ByQuentin Dcon

Quentin Dcon specializes in accounting in this field requires a specialist's analytical skills, endurance and ability to work with a lot of information. He is here to share the latest news on accounting. Questions can be asked by email: [email protected] Contacts: +1 814-742-0523

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