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Journal Entry for Goods Purchased | Inventory Purchased in Journal Entry

Arjun EP

Published on: June 17, 2020

GOODS PURCHASED, INVENTORY PURCHASED, MERCHANDISE PURCHASED

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 trader purchases and sales single or similar types of goods.

For computer trader, computers are goods.

For shoes trader, shoes are goods.

For cloth merchant, cloth is goods.

For furniture trader, furniture is goods.

For stationer, stationery is goods.

For car vendor, car is goods.

For grocery vendor, rice, sugar, soap etc are goods.

For computer trader, shoes are not goods.

For shoes trader, furniture is not goods.

For cloth merchant, car is not goods.

For furniture trader, cloth is not goods.

For stationer, furniture is not goods.

For car vendor, computer is not 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

To Cash¹ account

To Bank² account

To Mr A’s³ account

To XYZ Traders³

To Creditors⁴ or Suppliers

To Bills payable (A/P) account

(Being- goods purchased ………

Total value

Cash given

Cheque given

Credit purchased from person

Credit purchased from firm

Credit purchased but no name

Bill accepted

Increase in assets

Decrease in assets

Increase in liabilities

Journal Entry

In the book of …………

Date

Particulars

Amount Dr

Amount Cr

Purchase account

To Cash account

To Bank account

To Mr A’s account

To XYZ Traders account

To Creditors or Suppliers account

To Bills payable (A/P) account

(Being- goods purchased with …………………….….)

xxxxx

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

On June 10th, 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

Particulars

Amount Dr

Amount Cr

June, 10

Purchase account

To Cash account

90,000

(Being- books and copies purchased in cash)

Journal Entry for American Style

Date

Particulars

Debit

Credit

June, 10

Purchase account

To Cash account

To books and copies purchased in cash

90,000

Journal Entry for European Style

Date

Particulars

June, 10

Purchase account Dr

To Cash account

To books and copies purchased in cash

90,000

PROBLEM: 2B

On 3rd July, 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 Cols Store

Date

Particulars

Amount Dr

Amount Cr

Jul, 3

Purchase account

To Cash account

To Bank account

50,000

15,000

35,000

[Being- coke and fruity (goods) by cash and bank]

PROBLEM: 2C

On 4th February 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 AK Machinery Store

Date

Particulars

Amount Dr

Amount Cr

Feb, 4

Purchase account

To Bank account

To Cash account

To Sharma Traders*

580,000

250,000

30,000

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.

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BASIC JOURNAL ENTRIES IN NEPALI http://tiny.cc/uaakkz

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PROBLEM: 2D

On 5th Jun 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

Particulars

Amount Dr

Amount Cr

June, 5

Purchase account

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

On 10th June, 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

Particulars

Amount Dr

Amount Cr

June, 10

Purchase account

To Cash account

To Bank account

To Gokul Fancy Traders* account

To Manoj’s account

122,000

40,000

30,000

50,000

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 Deepak Furniture House

Date

Particulars

Amount Dr

Amount Cr

March, 10

Purchase account

To Cash account

To Bank account

To Bills payable account

To Everest Furniture Home

82,000

15,000

20,000

35,000

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

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]

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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