1. Credit Purchases

2. 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.

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

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

5. On Credit Sales

6. 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.

7. 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.

8. 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?

9. 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%

10. 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.

11. 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
PDB £144
PDB21 £120
VAT Account – GL2200
an asset entry Dr Cr
P Bond PL058 – Subsidiary Ledger
liabilities the business owes.
PBD £24 Dr Cr
PDB £96
PDB £48

12. 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.

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

14. 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.

15. 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%

16. 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
PRDB £144

17. 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.

18. 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
PDB £240 Dr Cr
PDB3 £40

19. Questions

20. 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).

21. Look Forward To:
Discount allowed & received day books.

22. Exercises