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Purchases Journal: Definition & Example

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  • 0:01 What Is a Purchases Journal?
  • 1:08 Example Transactions
  • 4:10 Lesson Summary
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Lesson Transcript
Instructor: Tara Schofield
This lesson explains what a purchase journal is, how it is used, and what types of transactions are recorded in a purchase journal. Several different examples of purchase journal postings are included.

What is a Purchases Journal?

During the normal course of business, many companies will purchase items on credit. When items are purchased on credit or on account, the transaction is recorded in the accounting records in the purchases journal. A purchases journal is a specialized type of accounting log that keeps track of orders made by a business on credit or on account. Cash purchases for inventory are not tracked in the purchases journal.

The amount of detail provided in a purchases journal is determined by the type of purchase and products received. Individual items are not usually recorded if they are small amounts and purchased with other items. Neither does the purchases journal track the amount of money owed on account to a supplier.

For instance, if you own a furniture store and make an order for 10 sofas on account, the order will be reflected as a journal entry that will include one debit and one credit; the sofas will not be individually recorded in the purchases journal as 10 separate entries. Nor will the balance of your account with the furniture supplier show in the purchases journal. In this instance, because the order was for inventory, the posting in the account will be credit to accounts payable and a debit to inventory.

Example Transactions

Let's take a look at a couple of other examples of a purchases journal being used.

Imagine you own a lumber yard and are running low on several different types of wood. You have accounts with many of your suppliers and decide to order additional stock before the spring months arrive and the demand for wood increases. You place 3 different orders, totaling $13,500 of wood.

  • An order to Would Wood in the amount of $2,000
  • An order to Wood Stockers for $3,500
  • An order to Builder's Supply for $8,000

The orders arrive the next day and, upon receipt, you record them in the purchases journal. Because you made and received 3 orders, you will enter three transactions to the journal which will total a debit of $13,500 to purchases and a credit of $13,500 to accounts payable. The debit will be made to the purchases log because the wood you ordered is considered inventory, intended for direct resale to your customers. Each of the transactions is posted separately to give you a chance to identify which vendor account is being affected. Here's a visual example of how these transactions might be recorded in the purchases journal:

PURCHASES JOURNAL

Date Supplier's Name Invoice# Accts. Payable Purchases
Feb 4 Would Wood 4352 Credit $2,000 Debit $2,000
Feb 8 Wood Stocker's 815 Credit $3,500 Debit $3,500
Feb 17 Builder's Supply 6932 Credit $8,000 Debit $8,000

Not all transactions logged in the purchases journal will result in a debit to the purchases account. It depends on the type of purchase what type of account is debited.

For instance, let's now pretend that you own a jewelry manufacturing business that makes costume jewelry in large quantities for discount stores throughout America. Your clients are all stores that carry your line and typically pay you within 30 days. To keep production going, you have set up accounts with your supply vendors with equal terms to ensure that you can have enough chain, jewels, clasps, and other supplies on hand to fill orders as they come in.

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