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.
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
Q. Record the following transactions in the books of M/s. X and Co. and in the Purchase Account
In the books of M/s. X and Co.