Credit Purchases

Lesson 1Revision DEAD CLIC? Double entry for buying £30 stationery using a business debit card. Double entry for paying £450 into the bank from cash sales. Classify these types of accounts: wages, rental income, sales, money taken out by the owner, stationery, purchases.

Lesson 2 Revision Calculate the VAT added on to £130. Calculate the VAT inclusive of £573.

Aims of the Session Accounting for credit purchases. Accounting for purchase returns.

On Credit Sales

Terminology Used General/nominal/main ledger – contains all the accounts. VAT Account – a asset entry, what is owed back to the business. Purchases Account – an expense account contains the net value of the sales. Purchase Ledger Control Account – an liability account, contains the gross of the purchases . Purchase Ledgers – named accounts contained in the PLCA contains the gross of the individual suppliers.

Accounting for Purchases Financial document is received– an invoice Entry into book of prime entry Purchases Day Book. Transferred to the ledger accounts Purchases Account, Purchases Ledger Control Account, VAT Account. Entry into the subsidiary ledgers – supplier accounts.

Purchases Day Book Looks familiar? Not part of the double entry system. First place that a financial transaction is recorded. Used to give totals to go into the ledger accounts. Reasons for using Day Books? Double check. Fewer transactions to be entered into the double entry system. Work can be divided up. Looks familiar?

Purchases Day Book Extract Cross reference to ledger Specific to supplier - cross reference Purchases Day Book PDB51 Date Details Invoice Number Account Code Total VAT * Net 5 Jan P Bond 1234 PL058 96 16 80 8 Jan D Webster A373 PL730 144 24 120 13 Jan 1239 48 8 40 15 Jan Sanders & Sons 5691 PL495 192 32 160 31 Jan Totals 480 400 GL2350 GL2200 GL5100 Specific to order Cross reference to ledger * VAT at 20%

Day Book is Totalled At regular intervals, daily, weekly, monthly. Entered in Purchases Ledgers – specific to supplier, not double entry. Entered into Purchases Ledger Control Account credit, the Purchases Account and the VAT Account debit.

Double Entry for Credit Purchases From the previous extract Purchases Ledger Control Account – GL2350 liabilities the business owes. Purchases Account – GL5100 an expense account Dr Cr Dr Cr PDB21 £144 PDB21 £120 VAT Account – GL2200 an asset entry Dr Cr P Bond PL058 – Subsidiary Ledger liabilities the business owes. PBD21 £24 Dr Cr PDB21 £96 PDB21 £48

Purchases Day Book Exercises Write up the Purchases Day Book for the following credit purchase transactions: Purchased goods of £95 + VAT from Quinions, account code PL001, invoice number 403. Purchased goods of £78 including VAT from Levison’s, account code PL002, invoice number S467. Purchased goods of £76 + VAT to May’s, account code PL003, invoice number IN906.

Transfer these to the double entry system and the relevant subsidiary accounts.

The opposite of accounting for a purchase. Purchase Returns Accounted for in the Purchases Returns Day Book. Then totalled and entered into the PLCA as a debit. VAT account is credited. Purchase Returns Account is credited. Subsidiary Purchase Ledger is debited. The opposite of accounting for a purchase.

Purchase Returns Day Book Extract Cross reference to ledger Specific to supplier - cross reference Purchase Return Day Book PRDB1 Date Details Credit Note Number Account Code Total VAT * Net 20 Jan D Webster 123 PL730 48 8 40 31 Jan Totals GL2350 GL2200 GL5110 Specific to order Cross reference to ledger * VAT at 20%

Double Entry for Purchase Returns From the previous extract Purchase Ledger Control Account – GL2350 Purchase Returns Account – GL5110 Dr Cr Dr Cr PRDB1 £144 PRDB1 £120 VAT Account – GL2200 Dr Cr PRDB1 £24 D Webster PL730 Dr Cr PRDB1 £144

The Analysed Purchases Day Book Splits sales into different types, for example buttons and lace. Purchases Day Book PDB3 Date Details Invoice number Account code Total VAT NET Bobbins Lace 9 Aug The Nicklebies 1846 PL907 240 40 200 100 16 Aug Rigauds 1847 PL915 144 20 124 Totals 384 60 324 224 GL2350 GL2200 GL5160 GL5190 Entry into the double entry system as previous, but the purchases accounts will be split into Bobbins and Lace.

Double Entry for Credit Purchases (Analysed) From the previous extract Purchases Account Bobbins GL5160 Dr Cr Purchases Ledger Control Account GL2350 Dr Cr PDB3 £100 PDB3 £240 Purchases Account Lace GL5190 Cr Dr PDB3 £100 The Nicklebies SL907 Dr Cr VAT Account GL2200 PDB3 £240 Dr Cr PDB3 £40

Questions

Recap Credit Sales Enter into the: Sales day book Sales day book is totalled Single entry made in customer’s sales ledger Doubles entries made in SLCA (dr) & Sales account & VAT account (cr). Sales Returns Sales returns day book Sales returns day book is totalled Doubles entries made in SLCA (cr) & sales returns account & VAT account (dr). Credit Purchases Purchases day book Purchases day book is totalled Single entry made in suppliers’ purchase ledger Doubles entries made in PLCA (cr) & purchases account & VAT account (dr). Purchase Returns Purchase returns day book Purchase returns day book is totalled Doubles entries made in PLCA (dr) & purchases returns account & VAT account (cr).

Look Forward To: Discount allowed & received day books.

Exercises