Purchases book is a subsidiary book in which only credit purchases of goods are recorded. When business wants to know the information about the credit purchases of goods at a glance, the information can be made available if purchases of goods on credit are separately recorded.
Goods here mean the items in which the business entity is dealing. In other words, it is the item which is purchased for regular sales. For example, furniture will be treated as goods in the case of the firm dealing in furniture. For other firms, which are not dealing in furniture it will be an asset. Hence, while recording transactions in the purchases book, it must be ascertained whether the credit purchase is related to the item in which the firm is dealing. Purchases of assets and purchase of goods for cash are not entered in purchases book.
In the date column, the date of purchases of goods on credit is recorded.
In this column the name of the supplier from whom goods have been purchased and details of goods purchased are given. It contains the name, quantity, quality and rate of goods purchased, trade discount and any other specification and specialties of the goods are recorded in this column.
Invoice is the statement prepared by the seller of goods. It contains details about the goods, its price and other expenses incurred. The invoice number is entered in this column.
The page number of the ledger in which the supplier’s account appears is recorded in this column. Purchases of goods must be posted to the personal accounts of suppliers. Purchases book contains the page number of supplier’s account in the ledger. It helps in posting and also in checking the records.
Amount column is divided into two parts, i.e., details and total. The details column is used to record the amount of various individual items purchased from a particular supplier. The amount of trade discount allowed is deducted. This column is used for adjustment of additions and subtractions.
The net amount payable to the supplier of goods is recorded in the total amount column.
Entries in the purchases day book are made from invoices which are popularly known as bills. Invoice is a business document or bill or statement, prepared and sent by the seller to the buyer giving the details of goods sold, such as quantity, quality, price, total value, etc. Thus, the invoice is a source document of prime entry both for the buyer and the seller.
Trade discount is a deduction given by the supplier to the buyer on the list price or catalogue price of the goods. It is given as a trade practice or when goods are purchased in large quantities. It is shown as a deduction in the invoice. Trade discount is not recorded in the books of accounts. Only the net amount is recorded. Example: Suppose the sale of goods for Rs.10,000 was made and 10% was allowed as trade discount, the entry regarding sales will be made for Rs. 9,000 (10,000 – 10 per cent of 10,000). In the same way, purchaser of goods will also record purchases as Rs. 9,000).
Record the following transactions in the purchases book of Shanthi Furniture Mart:
Purchased from Mohan Furniture Mart, Madurai 20 chairs @ Rs. 450 each
2 tables @ Rs. 1,000 each
Less: Trade discount @ 10%
Bought from Ramesh & Co., Royapettah
2 stools @ Rs. 500 each
10 rolling chairs @ Rs. 200 each
Delivery charges and cartage Rs. 150
Purchased from Kamal & Co., Karaikkal
10 chairs @ Rs. 750 each
15 steel cabinets @ Rs. 1,500 each
Packing and delivery charges Rs. 250
Less: Trade discount @ 10%
Purchased from Jemini & Sons, Chennai
2 typewriters @ Rs. 7,750 for office use
· Trade discount is allowed on the purchase price of goods excluding delivery charges and cartage.
· Delivery charges and cartage are direct expenses, chargeable from purchaser, so they are added to the amount payable.
Record the following transactions in the purchases book of Raja Furniture:
Purchased from Kasi Furnitures,Kanyakumari 10 chairs @ Rs. 300 each 4 tables @ Rs. 800 each
Purchased for cash from Welcome Furniture, Vellore 2 almirahs @ Rs. 2,000 each 4 chairs @ Rs. 200 each
Less: Trade discount 5%
Bought furniture from Murugan Furniture Mart, Nagapattinam 10 chairs @ Rs. 250 each
5 tables @ Rs. 750 each
Delivery and packing charges Rs. 150
Purchased 2 computers for office use from Anandan & Co., Adyar on credit for Rs.15,550 each
Purchased from Gowtham & Co., Chennai
10 chairs @ Rs. 550 each
15 steel cabinets @ Rs. 2,000 each
Delivery charges Rs. 200
Less: Trade discount 10%
· Purchases on 6th May, 2017 will not be recorded in the purchases book, because it is cash purchases.
· Purchases of computers on 20th May, 2017 will not be recorded in the purchases book, because computer is an asset for the firm dealing in furniture and it is for office use.
After the transactions are recorded in the purchases book, posting them to ledger involves two steps:
Step 1: Posting to personal accounts of creditors: Every day, each entry is posted to the credit side of the respective personal account of the creditor by entering the words ‘By Purchases account’.
Step 2: Posting to purchases account: Generally, at the end of the month, the purchases book is totalled. The monthly total of purchases is posted to the debit side of purchases account by writing the words ‘To Sundry creditors A/c’.
From the following transactions of Ram Home Appliances for July, 2017 prepare purchases book and ledger accounts connected with this book:
July 5 Purchased on credit from Kannan & Co.
50 iron boxes @ Rs. 500 each
10 grinders @ Rs. 3,000 each
July 6 Purchased for cash from Siva & Bros.
25 fans @ Rs. 1,250 each
July 10 Purchased from Balan & Co. on credit
20 grinders @ Rs. 2,500 each
10 mixies @ Rs. 3,000 each
Trade discount 10%
Delivery charges Rs. 1,000
July 20 Purchased on credit, one copier machine from Kumar for Rs. 35,000
Note: 6th July, transaction is a cash transaction and 20th July, transaction is purchase of an asset. Hence, both will not be recorded in the purchases book.