Purchases Journal: Definition

A purchases journal is a special journal used to record any merchandise purchased on account. The entries in this journal are made based on the invoice received from the supplier on the purchase date.

Other names used for the purchases journal are the purchases book, purchases daybook, and the credit purchases journal.

Purchases Journal: Explanation

The purchases journal is mainly used to record merchandise and inventory purchases on credit. If these are the only transactions recorded in the purchases journal, then the journal is similar to the one shown in the example below.

Purchases Journal Example

Purchase invoices are used to enter data into the journal. We are assuming that a periodic inventory system is in use and that all purchases are recorded at their gross amounts.

Therefore, the amount column represents a credit to accounts payable and a debit to purchases at the full invoice price.

Purchases Journal Format

The purchase journal has five columns, as shown in the format below.
Purchases Journal Format

The purposes of these columns are as follows:

  • Date: Records the purchase date
  • Account Credited: Records the name of the business from which merchandise was purchased on account
  • Invoice Number: Records the invoice number for reference purposes
  • Posting Reference: Records the account number after posting to the ledger
  • Amount: Records the invoice amount

Posting the Purchases Journal

Entries from the purchases journal are posted to the accounts payable subsidiary ledger and general ledger. The procedure for doing this is outlined below:

  1. The amounts from the purchases journal are posted as credits to individual suppliers’ accounts in the accounts payable subsidiary ledger. This posting occurs immediately after an entry has been made in the purchases journal.
  2. At the end of each month (or as appropriate), the amount column of the purchases journal is totaled and posted as a debit to the purchases account and a credit to the accounts payable account in the general ledger.
  3. The sum of all postings to accounts in the accounts payable subsidiary ledger is always equal to the amount posted to the accounts payable account in the general ledger.

Postings from the purchases journal follow the same pattern as postings from the sales journal. Each day, individual purchases should be posted to the vendor’s account in the accounts payable subsidiary ledger.

At the end of the month, the amount column in the journal is totaled, and this amount is posted as a debit in the general ledger purchases account. It is also posted as a credit in the general ledger accounts payable account.

Finally, at the end of the month, a list of the individual subsidiary accounts is created. This list is often called the accounts payable trial balance (or a schedule of accounts payable).

The balance in this list is compared with the balance in the general ledger accounts payable account. This procedure helps to verify that all the postings have been made correctly.

Example

Transactions from XYZ trading company for the month of January 2016 are listed below:

  • Jan. 02: Purchased merchandise on account from S & Co. for $900, invoice No. 105
  • Jan. 06: Purchased merchandise on account from A & Co. for $3,200 , invoice No. 240
  • Jan. 08: Purchased merchandise on account from Z Brothers for $360, invoice No. 115
  • Jan. 15: Purchased merchandise on account from S & Co for $800, invoice No. 305
  • Jan. 25: Purchased merchandise on account from S & Co for $700, invoice No. 395
  • Jan. 31: Purchased merchandise on account from Z Brothers for $300, invoice No. 345

Required:

  1. Record the above transactions in the purchases journal
  2. Post entries from the purchases journal to the accounts payable subsidiary ledger
  3. Post the purchases journal to the general ledger
  4. Prepare the schedule of accounts payable

Solution

1. Purchases journal
Purchases Journal
2. Accounts payable subsidiary ledger
S & Co. Accounts Payable Subsidiary Ledger
A & Co. Accounts Payable Subsidiary Ledger
Z Brothers Accounts Payable Subsidiary Ledger
3. General ledger
Purchases General Ledger
Accounts Payable General Ledger
4. Schedule of accounts payable
Schedule of Accounts Payable

Frequently Asked Questions

What is a purchases journal?

A purchases journal is a special journal used to record any merchandise purchased on account. The entries in this journal are made based on the invoice received from the supplier on the purchase date.

What is the format of a purchases journal?

The typical format for a purchases journal is as follows: date, supplier, invoice number, amount.

Why should I keep a purchases journal?

A purchases journal can be helpful in several ways. It can help you track the expenses of your business, which can be useful for tax purposes. It can also help you keep an accurate inventory of the products and services you offer. This can be helpful if you need to recall a product or service, or if you are considering expanding your offerings.

How often should I update my purchases journal?

You should update your purchases journal as often as necessary to reflect the most current information. This may be daily, weekly, or monthly, depending on the type of business you run and the products and services you offer.

What should I do if I make a mistake in my purchases journal?

If you make a mistake in your purchases journal, it is important to correct it as soon as possible. This will help ensure that the journal is accurate and up-to-date. You may also want to consider using a software program or online tool to help you track your purchases. This can help eliminate the possibility of mistakes being made in the journal.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

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