Principles of Accounting: The Purchases Ledger

• A purchase is when good(s) are bought with intention of selling them later,
• usually these goods will be sold at a profit
• Items bought with the intention of using them in the business are known as assets
• We have already looked at how to make entries in the Purchases Day Book and then transferring them into the Purchases Ledger here
• This is the normal cycle: first a purchase transaction is recorded in the subsdiary book( book of original entry) i.e Purchases Journal/Purchases Day Book
• Then into the appropriate ledger account in the Purchases Ledger
• The Purchases Leger contains all the personal accounts of the creditors from whom we have bought goods on credit
• Only credit purchases are recorded in the Purchases Ledger
• The Purchases Ledger is also aptly known as the Creditor’s Ledger
• Cash Purchases are not to be recorded in the Purchases Ledger

Purchases Ledger transaction and their entries

1. When we purchase goods worth $x from M Mussa:
   1. Debit the Purchases Account with $x
   2. Credit M Mussa’s Account in the Purchases(Creditor’s Ledger) with $x
2. When we settle our account and receive no Cash Discount:
   1. Debit M Mussa’s Account with the payment amount
   2. Credit Cash/Bank Account with payment amount
3. When we settle our account and receive a Cash Discount:
   1. Debit M Mussa’s Account with the payment amount
   2. Debit M Mussa’s Account with the discount amount
   3. Credit Cash/Bank Account with the payment amount
   4. Record the discount amount beside in the discount column beside the payment amount in the Cash Book

• We do not record Cash Purchases in the Purchases Ledger
• We do not include the Trade Discount Amount in our double entries
• You can use the example here to learn more about entering Purchases transactions into the books

To access more topics go to the Principles of Accounts Notes.