Introduction to Purchase Book and Purchase Return Book
The book of original entry is called a subsidiary book or a daybook. A subsidiary book is used to record transactions of a similar nature. There are six kinds of subsidiary books maintained by most organizations; Cashbook, Purchase book, Purchase Returns book, Sales book, Sales return book, and Journal proper. In case an organization does not maintain subsidiary books, it maintains Journal for all the transactions. A Journal is a record of all entries irrespective of their nature and does not bifurcate the entries according to their nature.
Let’s understand the Purchase book and Purchase Return Book in detail.
Purchase Book
A purchase book or a purchase day book is a subsidiary book. It contains the record of all credit purchases made. The cash goods purchases are recorded in the cash book. A Purchase book holds the record for the purchase of goods only and not purchases of assets. Asset purchase entries are recorded in the Journal proper.
The entries recorded in the Purchase book are done based on source documents like invoices or bills received from the suppliers of goods. The entries in the purchase book are done for the net amount of the invoice and do not include trade discounts and other details on the invoice.
The total of the Purchase book is entered monthly on the Debit side of the Purchases A/c but the individual accounts of the suppliers may be entered daily. When the volume of transactions in an organization is large, the entries for the purchase a/c in the ledger may be posted weekly or fortnightly.
Performa of the Purchase Book
Purchase Return Book
When the goods purchased on credit are returned to the supplier, the entries for such transactions are recorded in the Purchase return book or the purchase returns day book. Goods purchased are sometimes returned by the buyer on account of a defect or low quality. A separate subsidiary book is maintained for these purchase returns since these returns are not deducted from the purchases in the Purchase book. The entry for a purchase return transaction is done for the net amount on the invoice.
A debit note in duplicate is prepared for every return of goods. The original one is sent to the supplier while the duplicate copy is kept by the organization for its records. The Debit note includes the date, serial number, name of the supplier, details of goods returned, and the reason for the return of the goods.
The supplier can also prepare a Credit note and send it to the customer when the goods are received from the customer.
Performa of the Purchase Return Book
Solved Example
Q. Record the following transactions in the books of M/s. X and Co. and in the Purchase Account
Solution:
In the books of M/s. X and Co.
Purchase Book
FAQs on Purchase Book vs. Purchase Return Book
1. How should one manage money?
In one's lifetime, managing money is one of the most important skills that one can learn. Many people earn a lot, but only a few of them can manage it well. To manage money well, firstly, one should start by tracking the amounts of money they are earning and spending. This will help them to get a clear view of their weekly or monthly expenses and help them stop unnecessary expenses that are taking their money. For Example- A subscription to some video service that you don't see is a useless expense and can be removed from your monthly expense.
Now that one knows their money flow well, they can start building a good and practical budget. A budget should be created based on one's lifestyle and habits. No pleasure should be overpaid and at the same time no one should miss out on life in order to follow a strict budget. It depends on each and everyone and their conditions at the time. But budgeting helps one to keep track of their money without checking their pockets every time. The third thing one can do to manage their money well is to save and invest. Every month, some amount of money should be saved as no one knows when an emergency can fire upon them.
An emergency fund should be the most important thing one should have. The money keeps on depreciating its value due to inflation and other economic factors. Thus one should always invest some amount of money wherever they understand that they'll have a profit. Investing is another skill that one should learn to grow their money. These are some of the things that one can follow to manage money well.
2. Why is accounting important for a business?
Accounting is a very important part of any business as it helps it to know where it stands financially. One must keep the financial records of any business up to date. Some reasons why accounting is important for a business are
Accounting assists in creating budgets and planning for Future Projections
Accounting helps a lot in budgeting and future projections that can either grow the business or shut it completely. Financial records have a significant role in this as it helps to judge the business's financial situation. Business trends and predictions are based on historical financial records to keep the business's operations profitable. This financial data is most relevant when provided by properly structured accounting functions.
Accounting Helps in Filing Financial Statements
Businesses are mandated to file their financial records with the Registrar of Companies. Listed companies are needed to file the financial records with stock exchanges, Accounting also helps in managing direct and indirect tax filing purposes.
Accounting Helps in assessing the execution of business
One's financial records show the results of operations as well as the financial position of one's business or organization. The financial position helps one comprehend what’s going on with their business financially and helps them to make better decisions accordingly. Clean and up-to-date financial records also help one to keep track of payments, gross margin, and potential debts. It will also help one to compare their current data with the prior accounting records and assign their budget suitably.
Accounting Ensures Statutory Compliance
Laws and Regulations differ from place to place, but good accounting systems and methods will help one provide statutory obedience when it comes to the business. The accounting procedure will make sure that liabilities such as sales taxes like income tax, etc.
3. What are Subsidiary Books?
Subsidiary Books are the books used to maintain the Original Entry of anything. Subsidiary Books are also called Day Books. The different types of Subsidiary Books are-
Cash Book- Cash Book registers all the cash and bank receipts and payments of a business or an organization. Cashbook contains all the original entries that are recorded as transactions. Cashbook contains both debit and credit.
Purchases Return- Purchases Return is used when the items purchased on credit are returned back to the supplier. This can happen due to various reasons like faulty items or wrong items, etc. Purchase return also records the net amount on all invoices.
4. What are 3 important financial statements generated by one's records?
Accounting plays a critical role in operating a business as it helps the business people track their earnings and expenses. Accounting also ensures statutory compliance and provides investors, management, and the country's government with quantitative financial information which can be used in making future business decisions.
There are 3 important financial statements generated by one's records.
The income statement delivers you information about the profit and loss.
The balance sheet presents a clear picture of the financial status of the business on any particular date.
The cash flow statement acts as a bridge between the income statement and the balance sheet. It reports the cash generated and spent during a specific time.
5. What is the difference between a Purchase Book and a Purchase Account?
Difference between a Purchase Book and Purchase Account:
Purchase Book | Purchase Account |
It is part of the journal | It is part of the ledger |
It does not have a debit and credit column | Since it is part of the ledger, it has a debit and a credit column |
Purchase Book balance is posted to the Purchase Account | The balance from the Purchase Account is posted to the Trading Account |
Only credit purchases are recorded | All cash and credit purchases are entered into this account after journal entries are made for them |
