Home / Financial Accounting and Analysis

3185 Views

Estimated reading time : 99 Minutes

Journal Entry: Goods Purchased, Inventory Purchased, Merchandise Purchased

Arjun EP

Published on: September 28, 2020

How to make journal entry for goods purchased, inventory purchased and merchandise purchased

In trading business, journal entry for goods purchased is the second steps of financial transaction recording. After purchasing goods, they are sold.

Merchandise is business goods (inventory or stock).

These goods are purchased for resale.

Goods purchase for resale is known purchase.

It includes all cash and credit purchases.

It also includes goods-in-trade or goods-in-transit.

It does not include purchase of assets (plant, machinery, furniture, equipment etc).

Goods taken by the proprietor for personal, private or domestic use is called drawings.

Goods given as charity and sample are called advertisement.

Drawings goods and advertisement goods are deducted from purchase.

Purchase is debited in trading account.

Keep in Mind (KIM)

We assume that trader purchases and sales single or similar types of goods (inventory, merchandise)
For computer trader, computers are inventory.	For computer trader, shoes are not inventory.
For shoes trader, shoes are inventory.	For shoes trader, furniture is not inventory.
For cloth merchant, cloth is inventory.	For cloth merchant, car is not inventory.
For furniture trader, furniture is inventory.	For furniture trader, cloth is not inventory.
For stationer, stationery is inventory.	For stationer, furniture is not inventory.
For car vendor, car is inventory.	For car vendor, computer is not inventory
For grocery vendor, rice, sugar, soap etc are goods.	For grocery vendor, computer, furniture etc are not goods.
Supplies are purchased for use in running a business i.e. office supplies, cleaning supplies etc.

Goods Purchased

Purchase account	Dr	Total value	Increase in assets
To Cash¹ account		Cash given	Decrease in assets
To Bank² account		Cheque given	Decrease in assets
To Mr A’s³ account		Credit purchased from person	Increase in liabilities
To XYZ Traders³		Credit purchased from firm	Increase in liabilities
To Creditors⁴ or Suppliers		Credit purchased but no name	Increase in liabilities
To Bills payable⁵		Bill accepted	Increase in liabilities
(Being- goods purchased ………

Journal Entry

In the book of …………

Date	Particulars		LF	Amount Dr	Amount Cr
	Purchase account	Dr		xxxxx
	To Cash account				xxxxx
	To Bank account				xxxxx
	To Mr ABC				xxxxx
	To XYZ Traders				xxxxx
	To Creditors or Suppliers				xxxxx
	To Bills payable				xxxxx
	(Being- goods purchased with …………….….)

Keep in Mind (KIM)

When nothing is saying about transaction, it is cash¹ transaction.

When ‘cheque or bank’ is given in the question, it is bank² transaction.

When name of person¹ and firm³ is given, it is credit transaction.

When cash and cheque is given with name of person and firm, it is cash transaction.

When credit purchase is given but name of person or firm is not given, we should write creditors⁴.

Bills payable⁵ is also credit transaction but it is secured transaction.

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =

PROBLEM: 2A

Saran Stationery purchased books and copies for cash Rs 90,000

Required: Journal entry

[Answer: Purchase = 90,000]

SOLUTION:

Journal Entry

In the book of Saran Stationery

Date			LF	Amount Dr	Amount Cr
June, 10	Purchase account	Dr		90,000
	To Cash account				90,000
	(Being- books and copies purchased in cash)

Journal Entry for American Style

Date		Debit	Credit
June, 10	Purchase account	$90,000
	To Cash account		$90,000
	To books and copies purchased in cash

Journal Entry for European Style

Date
June, 10	Purchase account	90,000
	To Cash account		90,000
	To books and copies purchased in cash

PROBLEM: 2B

Aman Cold Store purchased coke for cash Rs 15,000; fruity by cheque Rs 35,000

Required: Journal entry

[Answer: Purchase = 50,000]

SOLUTION:

Journal Entry

In the book of Aman Colds Store

Date			LF	Amount Dr	Amount Cr
June, 10	Purchase account	Dr		50,000
	To Cash account				15,000
	To Bank account				35,000
	[Being- coke and fruity (goods) by cash and bank]

PROBLEM: 2C

AK Machinery Store purchased machinery by cheque Rs 250,000; tools for cash Rs 30,000 and generators Rs 300,000 from Sharma Traders

Required: Journal entry

[Answer: Purchase = 580,000]

SOLUTION:

Journal Entry

In the book of Aman Cols Store

Date			LF	Amount Dr	Amount Cr
June, 10	Purchase account	Dr		580,000
	To Bank account				250,000
	To Cash account				30,000
	To Sharma Traders*				300,000
	[Being- machinery, tools and generator (goods)
	purchased in cash and on credit]

Keep in Mind (KIM)

Sharma Trader* is the name of business firm (firm, organization, concern)

Purchase from business firm is credit transaction; Therefore, Sharma Traders is credited.

PROBLEM: 2D

MK Departmental Store purchased candles worth Rs 20,000 on credit

[Answer: Purchase = 20,000]

SOLUTION:

Journal Entry

In the book of MK Departmental Store

Date			LF	Amount Dr	Amount Cr
June, 10	Purchase account	Dr		20,000
	To Creditors (Suppliers)				20,000
	[Being- candles (goods) purchased on credit]

Keep in Mind (KIM)

Most of small industries are not registered. They do their business without VAT, GST bill.

They do not have name of firm also. They supply goods direct to purchaser.

In PROBLEM: 2D goods/candles purchased on credit but there is not any name of vendor.

When name of vendor is not given in the question, we should write Creditors or Supplier.

PROBLEM: 2E

AK Fancy House purchased jeans for cash Rs 40,000; T-shirt by cheque Rs 30,000; kids garment worth Rs 50,000 from Gokul Fancy Traders and caps worth Rs 2,000 from Manoj

Required: Journal entry

[Answer: Purchase = 122,000]

SOLUTION:

Journal Entry

In the book of AK Fancy House

Date			LF	Amount Dr	Amount Cr
June, 10	Purchase account	Dr		122,000
	To Cash account				40,000
	To Bank account				30,000
	To Gokul Fancy Traders* account				50,000
	To Manoj’s account				2,000
	[Being- jeans, T-shirt, kids garment and caps (goods)
	purchased in cash and on credit]

Keep in Mind (KIM)

Gokul Fancy Traders* is the name of business firm, it is credit transaction;

Therefore, Gokul Fancy Traders is credited

Manoj is the name of person, it is credit transaction; Therefore, Manoj is credited.

PROBLEM: 2F

Deepak Furniture House has following information on 10^th March:

a. Tables purchased from Sanjay for cash Rs 15,000

b. Chairs purchased Rs 20,000 and issued cheque

c. Sofa purchased from KP Furniture worth Rs 35,000 and accepted bill

d. Stools purchased from Everest Furniture Home Rs 12,000

Required: Journal entry

[Answer: Purchase = 82,000]

SOLUTION:

Journal Entry

In the book of AK Fancy House

Date			LF	Amount Dr	Amount Cr
June, 10	Purchase account	Dr		82,000
	To Cash account				15,000
	To Bank account				20,000
	To Bills payable account				35,000
	To Everest Furniture Home				12,000
	[Being- tables, chairs, sofa and stool (goods) purchased
	in cash and on credit]

Keep in Mind (KIM)

Tables purchased from Sanjay for cash, it is cash transaction; therefore cash is credited.

Sofa purchased from KP Furniture, it is credit transaction; therefore bills payable is credited.

Stools purchased from Everest Furniture Home, it is credit transaction;

Therefore Everest Furniture Home is credited.

PROBLEMS AND ANSWERS

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =

Basic Problem: 2 PURCHASES

The following different extracted information is given to you about purchase of goods (inventory or merchandise):

a. Saran Stationery purchased books for cash Rs 80,000.

b. Aman Cold Store purchased Pepsi for cash Rs 8,000; Real-Juice by cheque Rs 12,000.

c. AK Infotech Store purchased computer by cheque Rs 1,80,000; hard disk for cash Rs 20,000 and laptops Rs 2,50,000 from Thapa Traders.

d. Srijana Fancy Store purchased jeans for cash Rs 30,000; T-shirt by cheque Rs 50,000; kids garment worth Rs 20,000 from BC Importer and hanky worth Rs 1,000 from Manoj.

Required: Journal entries

[Answer: Purchase: (a) 80,000; (b) 20,000; (c) 450,000; (d) 101,000]

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු =

Basic Problem: 3 PURCHASE

DK Cycle Center (wholesaler) has following information for the month of March:

1 March Tube purchased from Sanjay for cash Rs 50,000.

5 March Chain purchased Rs 20,000 and issued cheque.

15 March Bell purchased Rs 3,000 on credit.

22 March Seat purchased from KP Cycle House worth Rs 80,000 and accepted bill.

31 March Stand purchased from Everest Metal Home Rs 15,000.

Required: Journal entries

[Answer: Purchase: (1) 50,000; (5) 20,000; (15) 3,000; (22) 80,000; (31) 15,000]