Large organizations no longer manually create purchase and sales journals. Established companies today have switched to using accounting software. Essentially, the purchase journal is used by the company’s owners to record the activities associated with the purchase transaction. Aside from the purchase journal, there is also a sales journal that serves a similar purpose as the purchase journal. This accounting software utilizes the concept of modularity where a similar set of activities is converted into specific modules.
The company’s main activities, which occur regularly and consistently, are buying and selling transactions. The current purchasing process control can be monitored using accounting software that can manage cash flow and purchase submissions from each supplier. Therefore, it is necessary to have accurate, precise, reasonable, and correct records. Using accounting software can provide you with an accurate analysis report to help you enhance future sales. Now, let’s discuss the purchase journal in detail, complete with examples and how to record it in the financial statements in this article. As a result, it needs accurate, precise, reasonable, and correct records. Now, in this article, we’ll go over this journal in detail, with examples and the way to record it in the financial statements.
Table of Content:
Table of Content
Definition of Journal Purchases
In a nutshell, a purchases journal is a journal entry that has the function to keep track of purchases that have occurred. Purchase transactions are recorded in the purchases journal in the same way that sales transactions are recorded in the sales journal. This applies to purchases made on credit, in cash, or for the return of goods. This also applies to purchase discounts.
Purchases of raw materials, for example, will be in the record of the purchase of raw materials journal. In addition, the record of vehicle purchases will be in the journal of credit purchases and the appropriate VAT amount.
Also read: The Difference Between Purchase Order and Invoice
Four Types & Examples of Purchases Journals
There are four types of purchase journals that you should know about cash purchases journals, credit purchases journals, discount purchases journals, and purchases returns and discounts journals. A cash purchases journal is the most common type of purchase journal. Here’s a full explanation:
Purchase journal
Accounting uses seven different journal books to keep track of accounts and record similar transactions. A purchase journal is a particular journal that functions to register the credit purchase of merchandise. The purchase journal will record the purchase transactions of merchandise on credit. The purchase journal does not include an asset purchased on the account.
However, many people believe that the record of all credit transactions should be in the multi-column purchase journal. Pyle and Larson, for example, have shown credit purchases of assets and supplies, etc., in a separate column in a purchase journal – debiting assets or office supplies and crediting accounts payable. Because the intention of this journal is to record the purchase of merchandise on credit, the record of the purchase of assets and other things on credit should be in the purchase journal; instead, the general journal should record it.
The format of the purchase journal:
Single-column purchase journal:
The usage of a single-column purchase journal is to record credit purchases of goods. In this regard, this journal format is the same in periodic and perpetual systems.
However, in the case of the periodic system purchase account and the perpetual system merchandise inventory accounts are both debited, and the account payable is credited:
Multi-column purchase journal
Some businesses keep a multi-column purchase journal to record credit purchases of goods, assets, and other items. The function of the journal columns for the organizations according to their requirements.
Trade journal
The trade discount is the exemption of value from the catalog price as per terms by the seller to the purchaser by the time of sale.
Buyers can benefit from using the trade discount of goods by earning a specific amount of profit by selling goods. For example, during price-fixing, setting the price of a commodity at $100, plus a 5% trade discount. When selling, the seller can grant a 5% trade discount, which means the buyer gets the benefit of selling the commodity at $95. The account book does not record the trade discounts because they do not result in a financial charge for either the seller or the buyer.
To speed up your invoicing process, help you get paid faster, and maintain cash flow, you can use e-invoicing software. The software can also perform follow-up payments automatically.
Also read: Get to Know the Types of Sales and Purchase Returns
Posting in ledger
A double-entry system does not write the purchase journal; it is not written with the debit and credit accounts determined. As a result, it must complete dual aspects before posting it to the ledger. We can’t see the display of the journal entry submitted at the end of the purchase journal. These journals have been provided for ease of posting to the ledger. Opening a purchase account in the catalog, the weekly or monthly purchases should take the debit from the miscellaneous account on the debit side.
Cash receipts journal
The cash receipts journal is a particular journal that has the function of recording all types of cash receipts. In today’s world, medium and large-sized business organizations use cash receipts journals every day. The two primary sources of cash receipts are cash from cash sales and money from accounts receivable. There could be other sources of cash receipts. For example, taking out a bank loan, receiving interest, selling assets for cash, and so on.
In general, the cash receipts journal has two debit columns for cash receipts and cash discounts and three credit columns for accounts receivable, sales, and other charges. Other account columns record cash from sources other than cash sales and account receivables. Suppose the perpetual inventory system is used to record merchandise inventory.
Periodic Inventory System: Under the periodic inventory system, the format of the cash receipt journal is as follows:
Perpetual Inventory System: Under the perpetual inventory system, the format of the cash receipt journal is as follows:
Conclusion
Purchasing goods and services is one of the essential activities in any organization, be it a service, trade, or manufacturing organization. Manufacturing companies will almost certainly purchase raw materials and auxiliary materials from suppliers to support their manufacturing operations. Service companies need suppliers to assist them in their business operations. On the other hand, trading companies need suppliers for their wares as well as assistance with their operations.
This journal will be easier to record after thoroughly discussing the subject matter. This is important to ensure that it presents financial statements that are valid and accurate and have usability as a reference for business people in preparing operational strategies for the next accounting period.
However, if you don’t have much time to complete purchase journal entries, trusted HashMicro’s Accounting System will help you save your time. You will be able to generate hundreds of different types of financial reports, including purchase reports, by simply entering some of the required information. What are you waiting for? Try now!
