1. Point 8 Purchase of goods
Every purchase should be proven by the original documents such as receipt or invoice.
Illustration

2. When the merchandise is received, we can record the purchase .
Purchases may be made for cash or on account (on credit).
Dr. Merchandise Inventory ①
Cr. Cash/Accounts Payable

3. ●According to the invoice, the buyer, Chelsea Video, would make the
following entry to record the purchase of merchandise :
Remember: a typical entry of purchase.

4. Purchase Tax——GST
Goods and Services Tax (GST) is paid by merchandising companies on the goods they purchase for resale.
GST is not part of the cost of the merchandise.
Companies can get back any GST by offsetting it against the GST they collect from customers.
It has several tax rates according to the annual sales.

5. GST rates in purchase Type of taxpayer Annual sales GST rate China
The general taxpayer
Industrial enterprises
＞￥500,000
17%
 Commercial enterprises ＞￥800,000
Small-scale taxpayer
≤ ￥500,000 0%
 Commercial enterprises ≤ ￥800,000
Canada
Any business
≥＄30,000 5%

6. Dr. Merchandise Inventory
So if we consider the tax, for the general taxpayer , Entry ① becomes the following one:
Dr. Merchandise Inventory
Dr. GST Recoverable（ cost ×rate）
Cr. Cash/Accounts Payable

7. ●If the annual sales of an Industrial enterprise in China is ￥600,000, On March 8, Xinxing Company purchases merchandise for ￥10,000 on account from Tianyu Company.