CHAPTER 15Purchase and purchase returns day books

Contents

What is the purchase day book? What is the purchase returns day book? Entering purchase transactions in the

day books Coding data Posting the day book totals

What is the purchase day book? Used to keep a list of all of the invoices received

from suppliers of goods and services to the business.

Like the sales day book, it is a 'book of prime entry' or a 'primary record' and not a ledger account.

What is the purchase returns day book?

Lists credit notes received in respect of purchase returns in chronological order.

Why returns? Supplier to accept? Faulty or damaged goods Goods purchased on a 'sale or return' basis will

be returned if they cannot be sold If goods have been ordered by the business

and are in good condition but are surplus to the requirements of the purchasing business, it is up to the supplier whether he accept them as returns

Discussion

Which of the following cases would you classify as a purchase return by your business

(a) Goods purchased from you by a customer and returned.(b) You have been billed twice, by accident, for a single amount of

goods, and you return the superfluous purchase invoice.(c) You have been delivered some goods which are faulty and you send

them back. You have posted the invoice received in respect of the goods.

(d) A customer sends back some sub-standard goods to you.(e) A supplier sends back some goods to you which you have delivered

there by mistake, thinking the supplier was in fact a customer.(f) An item of inventory is damaged in a fire at your warehouse and,

because you cannot use it any more, you have to go back to the original supplier and order a replacement.

(g) You question an invoice because you have been billed for items which you have not ordered, and which you have not received.

(h) You have been delivered a quantity of goods in excess of your requirements. The supplier agrees that you can return them.

Analysis of purchases

Posting the day book totals

Narrative: Posting purchases

Narrative: Posting purchases returns

Question

You work for Bodgett DIY. You receive the following invoices from suppliers on the morning of 23 November 20X7. Each invoice has already been given a reference by one of your fellow workers for Bodgett DIY's own accounting system.

Tasks(a) Post the invoices to the purchase day book(b) Set out the double entry for these transactions,

assuming that totals are posted to the general ledger at the end of each working day.

Quiz

1 What is the purchase day book used for?2 What does the purchase returns day

book do?3 What is the double entry for a credit

purchase?4 What is the double entry where the

credit purchase includes sales tax?5 What is the double entry for purchase

returns with sales tax?

Answer

1 To keep a list of all the invoices received from suppliers of goods or services to the business.

2 It lists credit notes received in respect of purchase returns in chronological order.

3 DEBIT PurchasesCREDIT Payables

4 DEBIT Purchases (sales tax exclusive amount)DEBIT Sales tax

CREDIT Payables (sales tax inclusive amount)5 DEBIT Payables (sales tax inclusive)

CREDIT Purchase returns/Purchases (sales tax exclusive)

CREDIT Sales tax

QB 32

If a purchase return of $48 has been wrongly posted to the debit of the sales returns account, but has been correctly entered in the supplier's account, the total of the trial balance would show

A The credit side to be $48 more than the debit sideB The debit side to be $48 more than the credit sideC The credit side to be $96 more than the debit sideD The debit side to be $96 more than the credit side

Answer: D

QB 33

A company received an invoice from ACB Co, for 40 units at $10 each, less 25% trade discount, these being items purchased on credit and for resale. It paid this invoice minus a cash discount of 2%. Which journal entries to record?

Purchases 300ABC Co 300

ABC Co 300Discount allowed 6Cash 294