JOURNAL ENTRY FOR PURCHASE ( CASH,CREDIT AND OTHER PRACTICAL SCENARIOS INCLUDING INDIRECT TAXES)
Hi friends, here we are going to learn journal entry for Purchase.
Usually accounting software there is no need to pass journal
entry like below
SL.NO
|
PARTICULAR
|
DEBIT
|
CREDIT
|
1
|
Purchase or Material A/c Dr
To Sundry Creditor A/c
|
XXXXX
|
XXXXX
|
Because in software there is separate entry field for
Purchase, the required details will be updated in Purchase and Sundry Creditor ledgers.
Purchase are divided into cash Purchase and credit Purchase
and further sub categorized into manufacturing Purchase and trading Purchase.
But i am giving brief explanation for the first entry here:-
Basic entry
Journal entry in case
of cash Purchase of Rs.1000
SL.NO
|
PARTICULAR
|
DEBIT
|
CREDIT
|
1
|
ccPurchase A/c Dr
To Cash A/c
|
1000
|
1000
|
(Narration:- Being goods Purchased
on cash against bill no:01)
*Dr=Debit
The rules for passing Journal Entry
Debit
Due to purchase goods are coming into business. Goods are
treated as asset.
As per Real account rule (Purchase) “Debit what comes into
business"
Credit
Here cash is going out of business because of purchase.
As per Real account rule(cash) "Credit what goes out of
Business"(Current asset)
Journal entry in case
Credit Purchase of Rs.1000
SL.NO
|
PARTICULAR
|
DEBIT
|
CREDIT
|
1
|
Purchase A/c Dr
To Creditor A/c
|
1000
|
1000
|
(Narration:- Being goods Purchased on credit against bill no:02)
The rules for passing Journal entry
Debit
Due to purchase goods are coming into business. Goods are
treated as asset.
As per Real account rule (Purchase) “Debit what comes into
business"
Credit
Due to credit purchase we are liable to him. And he is
giving us the goods on credit. The creditors balance will increase.
As per personal account rule(sundry Creditor) "Credit
the giver account"(Current Liabilities)
Journal entry in case of MANUFACTURING/SERVICE companies with
inclusive taxes(Taxes treated as asset)
Purchase of Raw material worth Rs. 1000/- including taxes of Rs.140/-
SL.NO
|
PARTICULAR
|
DEBIT
|
CREDIT
|
1
|
Purchase A/c Dr
Duties & Taxes A/c Dr(current asset)
To Creditor A/c
|
860
140
|
1000
|
(Narration:- Being goods Purchased
on credit against bill no:03)
The rules for passing Journal Entry
Debit
Due to purchase goods are coming into business. Goods are
treated as asset.
As per Real account rule (Purchase) “Debit what comes into
business"
Debit
As we are paying duties on purchase are eligible for Input
credit and treated as asset.(I.e. the taxes paid to creditors are not expense
and it has to be treated as asset and can be set off against the duties
payable, But before treating it as asset the input eligibility should be
checked. Normally the purchase related to manufacture Except Factory building
items Ex-Cement& steel can be availed as Input credit)Ex: - EXCISE DUTY,
VAT & SERVICE TAX.
As per
Real account rule (Duties and taxes) "Debit what comes into business"(Current
Assets)
Credit
Due to credit purchase we are liable to him. And he is
giving us the goods on credit.The creditors balance will increase.
As per personal account rule(sundry Creditor) "Credit
the giver account"(Current Liabilities)
Journal entry in case of MANUFACTURING/SERVICE companies with
inclusive taxes (Taxes treated as Expense)
Purchase of Raw material worth Rs. 1000/- including taxes of Rs.140/-
SL.NO
|
PARTICULAR
|
DEBIT
|
CREDIT
|
1
|
Purchase A/c Dr
Duties & Taxes A/c Dr(Expenses)
To Creditor A/c
|
860
140
|
1000
|
(Narration:- Being goods Purchased
on credit against bill no:04)
The rules for passing Journal Entry
Debit
Due to purchase goods are coming into business. Goods are
treated as asset.
As per Real account rule (Purchase) “Debit what comes into
business"
Debit
As we paying duties which are not eligible for input credit
will be treated as expense.(I.e. But before treating it as asset the input
eligibility should be checked. Normally the purchase related to manufacture
Except Factory building items Ex-Cement& steel can be availed as input
credit )Ex: - EXCISE DUTY, VAT & SERVICE TAX.
As per
Nominal account rule (Duties and taxes) "Debit all expense or loss"(expense)
Credit
Due to credit purchase we are liable to him. And he is
giving us the goods on credit.The creditors balance will increase.
As per personal account rule(sundry Creditor) "Credit
the giver account"(Current Liabilities)
Journal entry in case of Purchase with Normal Loss or Abnormal Loss
Purchase of Raw material worth Rs. 1000/- including taxes of Rs.90/- and abnormal loss of Rs.50/-
SL.NO
|
PARTICULAR
|
DEBIT
|
CREDIT
|
1
|
Purchase A/c Dr
Duties & Taxes A/c Dr(current asset)
Abnormal Loss A/c Dr
To Creditor A/c
|
860
50
90
|
1000
|
(Narration:- Being goods Purchased
on credit vide bill no:01)
The rules for passing Journal Entry
Debit
Due to purchase goods are coming into business. Goods are
treated as asset.
As per Real account rule (Purchase) “Debit what comes into
business"
Debit
As we paying duties which are not eligible for input credit
will be treated as expense.(I.e. But before treating it as asset the input
eligibility should be checked. Normally the purchase related to manufacture
Except Factory building items Ex-Cement& steel can be availed as input
credit )Ex: - EXCISE DUTY, VAT & SERVICE TAX.
As per
Nominal account rule (Duties and taxes) "Debit all expense or
loss"(expense)
Debit
Abnormal
losses will be treated as loss. So the abnormal loss will be shown on debit side of profit and loss
account.
As per
Nominal account rule (Duties and taxes) "Debit all expense or
loss"(expense)
(In case of Permissible damage it can be included in
purchase A/c. The Taxes & Duties i.e. Excise
duty & VAT paid is not entitle for input of quantity lost. When there
is abnormal/not acceptable level of damage the same should transferred to
abnormal loss account or the same can returned to party by raising the debit
note. The Taxes & Duties i.e. Excise
duty & VAT paid is not entitle for input of quantity lost or returned)
In simple words the Taxes
& Duties i.e. Excise duty & VAT paid on purchase are eligible only for
the quantity received.
Credit
Due to credit purchase we are liable to him. And he is selling
us the goods on credit.The creditors balance will increase.
As per personal account rule(sundry Creditor) "Credit
the giver account"(Current Liabilities)
Before passing entries you need to cross check the purchase
entry with invoice in following areas:-
1)Quantity
2) Rate per Kg 3) Excise Duty (Direct or Input as such) 4) VAT/CST.
2) Date
of purchase invoice
In our next topic, i am going to explain how to pass journal entry for Purchase return in different scenarios.
Hats off to your presence of mind..I really enjoyed reading your blog. I really appreciate your information which you shared with us.
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