When Is the Purchases Account Credited?

The purchases account is credited in the following cases. If goods are given as a free sample If goods are stolen If goods are lost If goods are donated to charity If goods are withdrawn by the proprietor for personal use Normally, when goods leave a business, the transactions are termed sales. However, in all of the above cases, purchases are reduced by crediting the purchases account, which is b…

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General Journal

Journal or General Journal General Journal is the first phase of accounting where all the transactions are recorded originally in chronological order. That’s why it is also called the original book of entries or chronological book or day book. In the journal both the aspects of all the transactions are recorded by following the “Double Entry System”. Before recording transactions in journal, it is…

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Journal Entry for Purchase of Merchandise

Merchandise: Definition Merchandise is the term used to refer to any goods purchased for the purpose of resale in the ordinary course of business. The term is regularly used in trading organizations. Journal Entry Merchandise are purchased either for cash or on account. The journal entries required to record the purchase of merchandise under both the cases are discussed below: When Merchandise Are…

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Journal Entry for Sale of Merchandise

Businesses sell merchandise for cash as well as on account. The journal entries for both types of transactions are discussed below. When Merchandise Are Sold for Cash When merchandise are sold for cash, the accounts involved in the transaction are the cash account and sales account. The cash account is debited and the sales account is credited. See the following example: Example On 1 January 2016,…

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Journal Entry for Cash Discount

What Is Cash Discount? Cash discount is offered by sellers to buyers for making the payment within a stated number of days. The purpose of cash discount is to encourage buyers of merchandise to make payment before the due date. The percentage of cash discount is mentioned in payment terms. For example, the terms 2/10, n/30 means a 2% discount will be allowed if the payment is made within 10 days o…

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Journal Entry for Purchase Returns (Returns Outward)

Returns Outward: Definition Merchandise that is returned to suppliers is known as returns outward. If merchandise purchased are not received according to specifications or if they are defective, buyer can return them to the seller or ask the seller for an allowance (e.g., reduction in price). To record such returns and allowances, the purchase returns and allowances account is used in the buyer’s…

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Journal Entry for Goods Given as Charity

A business organization may give some goods as charity to a charitable institution or directly to people in need of charity. Goods given away as charity reduce the merchandise without any consideration. They are recorded as an expense in the books of the business. Journal Entry When goods are given as charity, the charity account is debited and the purchases account is credited. The journal entry…

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Journal Entry for Distribution of Goods as Free Samples

The distribution of goods as free samples is not uncommon among businesses. Free samples are often used as part of a company’s marketing and consumer outreach programs. The major purposes of the distribution of goods as free samples include: Introducing a new product in the market Introducing an existing product in a new market Introducing a feature upgrade to an existing product Increasing the ma…

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Journal Entry for Sales Returns (Returns Inwards)

Returns Inwards: Definition Occasionally, customers return the merchandise they purchase. In accounting, such returned merchandise are termed as sales returns or returns inwards. The major reasons for sales returns are: Defective merchandise was shipped An excessive quantity of merchandise was shipped Low-quality merchandise was shipped Merchandise shipped to customers do not match the order speci…

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Compound Journal Entry

What Is Compound Journal Entry?- Definition A compound journal entry is a journal entry that involves more than two accounts. When two or more transactions of the same nature take place on the same date, accountants prefer to make a compound journal entry instead of two or more separate journal entries. There must be two conditions which should be fulfilled: Date of transactions being compounded s…

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