The Purchase Day Book, also known as the Purchases Journal, is a book of prime entry used to record all credit purchases of goods and services intended for resale or production. It does not include cash purchases, which are recorded in the Cash Book. The Purchase Day Book helps businesses systematically track their credit purchases and manage their payables effectively.
1. What Is a Purchase Day Book?
The Purchase Day Book is a specialized journal that records all transactions where goods or services are purchased on credit. Each entry in this book is made based on a purchase invoice received from a supplier. The transactions recorded here are later posted to individual supplier accounts in the Purchase Ledger.
Key Features of the Purchase Day Book:
- Records Credit Purchases Only: Only credit transactions for goods and services are recorded; cash purchases are excluded.
- Chronological Order: Entries are recorded in the order they occur, providing a clear timeline of credit purchases.
- Based on Purchase Invoices: Each entry corresponds to a specific invoice received from a supplier.
- Supports the Purchase Ledger: Entries from the Purchase Day Book are posted to individual supplier accounts in the Purchase Ledger.
2. Format of the Purchase Day Book
The Purchase Day Book typically includes columns for the date of the purchase, invoice number, supplier name, description of the goods or services purchased, and the amount.
Example of a Purchase Day Book Format:
| Date | Invoice No. | Supplier Name | Details | Amount ($) |
|---|
3. Example of Purchase Day Book Entries
Scenario:
XYZ Company makes the following credit purchases during the first week of January:
- Jan 3: Purchased raw materials worth $4,000 from Supplier A (Invoice No. 101).
- Jan 5: Purchased office supplies worth $1,200 from Supplier B (Invoice No. 102).
- Jan 7: Purchased inventory for resale worth $3,500 from Supplier C (Invoice No. 103).
Purchase Day Book for January 1–7:
| Date | Invoice No. | Supplier Name | Details | Amount ($) |
|---|---|---|---|---|
| Jan 3 | 101 | Supplier A | Purchase of raw materials on credit | $4,000 |
| Jan 5 | 102 | Supplier B | Purchase of office supplies on credit | $1,200 |
| Jan 7 | 103 | Supplier C | Purchase of inventory on credit | $3,500 |
| Total Purchases for the Period: | $8,700 | |||
4. Posting from the Purchase Day Book to the Purchase Ledger
Once transactions are recorded in the Purchase Day Book, they are posted to individual supplier accounts in the Purchase Ledger. The total amount from the Purchase Day Book is also posted to the Purchases Account in the General Ledger.
Example of Purchase Ledger Entries:
| Date | Details | Debit (Dr.) | Credit (Cr.) | Balance |
|---|---|---|---|---|
| Jan 3 | Invoice No. 101 (Supplier A) | $4,000 | $4,000 Cr. | |
| Jan 5 | Invoice No. 102 (Supplier B) | $1,200 | $1,200 Cr. | |
| Jan 7 | Invoice No. 103 (Supplier C) | $3,500 | $3,500 Cr. |
5. Importance of the Purchase Day Book
- Organized Record-Keeping: Provides a systematic way to record credit purchases, ensuring that all transactions are documented accurately.
- Efficient Posting: Simplifies the process of posting to the Purchase Ledger by consolidating all credit purchases in one place.
- Tracks Payables: Helps businesses manage accounts payable and ensure timely payments to suppliers.
- Supports Financial Reporting: The totals from the Purchase Day Book contribute to the accurate reporting of expenses and cost of goods sold in the financial statements.
6. Differences Between the Purchase Day Book and Purchase Ledger
| Aspect | Purchase Day Book | Purchase Ledger |
|---|---|---|
| Purpose | Records credit purchases transactions in chronological order. | Maintains individual supplier accounts, showing amounts owed. |
| Function | Acts as a book of prime entry. | Acts as a ledger for managing supplier balances. |
| Level of Detail | Summarizes purchase transactions with basic details. | Provides detailed records of payments, credits, and outstanding balances with suppliers. |
| Frequency of Use | Updated with each credit purchase. | Updated when payments are made or adjustments occur. |
7. The Role of the Purchase Day Book in Accounting
The Purchase Day Book is an essential tool for recording and managing credit purchases in a business. By maintaining an organized and chronological record of all credit purchases, it facilitates accurate posting to the Purchase Ledger and supports effective management of payables. The Purchase Day Book plays a crucial role in ensuring accurate expense reporting, aiding in financial decision-making, and maintaining control over supplier relationships.