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
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 purchased furniture journal entry 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 purchased furniture journal entry 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.
Chapter 4 – Recording of Transactions Accountancy Class 11