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 ……… |
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|
|
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 …………….….) |
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|
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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] |
|
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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 10th 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]
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