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 day book, 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.
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.
Purchases Journal Format
The purchase journal has five columns, as shown in the format below.
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:
- 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.
- 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.
- 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.
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
- Record the above transactions in the purchases journal
- Post entries from the purchases journal to the accounts payable subsidiary ledger
- Post the purchases journal to the general ledger
- Prepare the schedule of accounts payable
1. Purchases journal
2. Accounts payable subsidiary ledger
3. General ledger
4. Schedule of accounts payable