How to Pass Journal Entries for Purchases

In any type of business, record of purchase is so important. Because on the basis of purchase record basis, we take the decisions of manufacturing and sales. So, for records of purchase, we need to pass the journal entries of purchases. For these journal entries, we deem purchase as the inventory which is needed for manufacturing or sale. It is current asset and it is not purchase of fixed asset.

Following are the Main Journal Entries for Record of Purchases

1. Journal Entry for Cash Purchases 

When we purchase the goods on the basis of cash, we need not record our supplier. We already know where we want to buy with cash. Just pass following journal entries when you pay the money for buying.

Purchase Account Debit

Bank/Cash Account Credit

2. Journal Entry for Credit Purchases

When we purchase on credit basis instead of cash, we need to record the detail of creditor. Because with this, we can pay the creditor in future. We know what balance of creditors, we have in our accounts as liability.

Purchase Account Debit

Creditor Account Credit

3. Journal Entry for Purchases with excise duty 

If any manufacturer buys the purchase from other dealer or manufacturer, there will apply the rule of excise duty. For changing the rates of excise duty, you should get updates of your current year budget. As per businessman, excise duty is indirect expense. First of all Excise duty will be payable to creditor. After this, he will sell same goods, he will get excise duty on sale. Difference of excise duty paid on purchase and excise duty received on sale will be deposited in Govt. Department. More journal entries of excise duties, you can learn at Journal Entries of Excise Duties.

Purchase Account Debit

Excise Duty on Purchase Account Debit

Creditor Account Credit

 4. Journal Entry of Purchase Return

If you have return goods due to scrap or any default, it will be purchase return, following entry will pass

Creditor / Cash / Bank Account Debit

Purchase Return Account Credit

 5. Journal Entry of Purchase return with Excise Duty 

If there is purchase return and sale return, then net payable amount to Govt. account will adjust from these two major factor.

Creditor Account Debit

Excise duty Account Credit

Purchase Return Account Credit

 6. Journal Entry of Purchase with VAT

 When Goods are bought and you have to pay both purchase value and VAT input or paid both, at that time, following journal entry will be passed.

Purchase Account Dr.  (Value of Purchase)
VAT Input Account Dr. ( VAT on Purchase)
Cash or Bank or Name of Creditor Account Cr. (Value of Purchase + VAT input)

Reason of this Journal Entry :

We have bought the goods, it increases our current asset. Increase of asset will always debit. VAT input is also our current Asset or Negative Current Liability because We paid this to our creditor or supplier (for paying govt.) but still our net liability has not been fixed. If we received VAT output same to VAT input, then VAT Input account will automatically written off. If VAT input will be more than VAT Output, we have to Get money from Govt. So, VAT input account will be Debit. If we are final consumer, we need not show the VAT Input account, its cost will be included in purchase account. So, purchase expense will increase and debit in our journal entry. More learn about VAT journal entries.

 7. Purchase return with VAT

If there is purchase return, VAT input account will cancel on the basis of purchase return amount.

Cash/Bank / Creditor Account Debit (Value of Purchase return + VAT input on purchase return)

Purchase Return Account Credit   (Value of Purchase return)

VAT Input Account Credit ( VAT on Purchase return)


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Accounting Education: How to Pass Journal Entries for Purchases
How to Pass Journal Entries for Purchases
Accounting Education
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