Purchase Day Book in Accounting
In the scope of accounting, accounts of primary entry and accounts of secondary entry are the two types of accounts. Among the books of primary entry, we have some specialized books, and we name these as subsidiary books. Among these subsidiary books, a very important kind is the purchase journal or the purchase day book. There are several types of purchase day books namely purchase journal, purchase day book, the book of the invoice, bought book, etc. It is an original entry book. This article will look into the definition, the format of purchase day book, advantages of purchase day book, solved examples, etc.
Meaning of Purchase Day Book
The purchase day book is a subsidiary book that records those credit purchases of a firm, which the firm shall resell. Therefore, no cash transactions are a part of a purchase journal. Such trades are a part of the cash book. Any transaction which the business doesn't mean to resell is not made a part of the purchase book.
For instance, a piece of machinery purchased on credit will not find a place in the purchase book but rather in a journal. When the accountant records all the entries properly, he/she calculates the total at the end of a week or month. This value shows the total amount of credit transactions for that specific period. This amount of money gets debited from the purchase account of the firm, and the credit goes to the accounts of the sellers individually.
Format of Purchase Day Book
The format of the purchase day book is as follows:
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As you can see, the format of the purchase book consists of five columns and is a tad bit different from an ordinary journal. The foremost column is the one concerning the date of purchase. The next column is the one for the particulars of the purchase, which in this case is the name of the supplier. One can also put in other details like the number of goods bought or the price of the goods, etc. The third column reads L.F., which refers to 'ledger folio' and the consecutive one is for the invoice number. These details are solely for reference information, as in the method of manual accounting, cross-referencing is an important element. The last column states the total amount that is due to the supplier for a particular transaction.
Advantages of Purchase Day Book
The following are a list of advantages of purchase daybook:
All the transactions concerning the goods bought on credit find a single place for the purpose of referencing, thus simplifying the process.
Important information regarding purchases doesn't get lost and are together in one place.
We don't need a separate narration or account titles for a purchase day book entry.
It facilitates the division of labour among the workers of the organization.
Now that the definition, format and importance of a purchase day book are clear, let us see a solved question on purchase day book followed by some frequently asked questions.
Solved Examples
1. PQR Ltd. runs a grocery store. The following is their list of purchases for November 2020. Draft a purchase daybook for these transactions.
20Kg potatoes bought from XYZ farms at Rs. 40 per kilo and a 5% trade discount
50Kg flour bought from EFG Co. at Rs.200 on credit
60 bags of rice bought from DEF Ltd. at Rs.600 each and a 10% cash discount
90Kg sugar bought from IJK Co. at Rs. 60 per kilo on credit
Answer:
Purchase Day Book
We do not consider the third transaction as the exchange was in cash and therefore, it will not be a part of a purchase day book.
Advantages
While working on a purchase day book, it provided some advantages over other types of record keeping which can be enumerated as follows:
All entries of purchases are kept as a record in one place, therefore, it is easy to refer to and browse through these entries to look up for any information.
All the important information regarding the transactions such as the number of items purchased or the amount of a product traded
FAQs on Purchase Day Book: Structure and Examples
1. Differentiate between purchase day book and purchase return book.
The difference between a purchase day book and a purchase return book is that in a purchase day book, all credit purchases done by a firm are recorded while in purchase return book, all the goods that are returned to the supplier by the firm are recorded.
2. What are the purchase returns day books?
Just like a purchase day book, we have another subsidiary book in accounting that we call the purchases returns day book. This book comes into play once the business or firm returns the goods it bought on credit from the suppliers. Once the goods are successfully returned, the suppliers provide a credit note, and the firm keeps a record of this in the purchase returns day book. This book is also known as the purchases returns journal or the returns outwards journal. In simple terms, it is a chronological list of the purchases that returns credit notes. The advantages of this book of accounts are that it saves time required for browsing, prevents the cluttering of the main ledger and facilitates segregation of tasks.
In accounting, various types of records are maintained for reference purposes and recording of transactions. There are two types of records: primary entry and secondary entry of records. Purchase book is a type of specialized subsidiary book under primary entry of records. Let's learn about the purchase day book, its contents and advantages in detail.
3. What is a purchase day book?
Purchase Day Book is a special kind of subsidiary book of accounting records used for recording credit purchases of products. Purchases of goods in cash are not accounted for in the purchase book. It is an original entry book like a Cash Book. The purchase day book contains all the basic information related to a purchase such as date of transaction, name of the seller or supplier, amount of purchase, invoice number of seller or supplier, and purchase invoice. There are mainly two types of purchase day books:
Simple
Columnar
Simple
This format of purchase day book is used by a seller or supplier who has unlimited types of products which he trades in.
Columnar
This format of purchase day book is used by a seller or supplier who has a limited amount of products which he trades in. Here, an accountant will show all the goods traded in a separate column in order to find out the sale and remaining stocks of each product.
Contents
The contents of a purchase day book is given as follows:
Date
In this column, the date of purchase is to be written.
Particulars
Here, the details of the business transactions are recorded such as the name of the seller or supplier, the name and quantity of materials bought or sold, etc.
Invoice number
Invoice number of the product purchased is written in this column for tracking purposes.
L.F.
The full form of L.F. is Ledger Folio. All records of transactions related to the goods are written in this column.
Details
Total number of items and trade discounts are entered in this column. Trade discount is deducted from the total number of items and entered in the column.
Amount
Net amount per customer is entered in this column.
4. Mention in detail the advantages of keeping a purchase day book?
A purchase day book is a sequential list of all the purchases made on credit. Maintaining such a record has several advantages. These are as given below:
It is a concise and organized method for recording all the necessary details regarding credit purchases. It, therefore, decreases mismanagement and makes cross-referencing very easy.
It maintains all the crucial information such as the date of purchase, rate of goods, the number of goods, names of the sellers, etc., and avoids having data misplaced.
It prevents the main ledger from getting too overcrowded with corrections and updates. We, therefore, do not need new account titles and explanations in the main book.
It allows for the distribution of labour in the organization.
