CONTENTS 1.0 Introduction 2.0 Objectives 3.0 Main Content
3.1 Purchases Day Book 3.2 Purchases and Discount 4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment 7.0 References/Further Readings 1.0 INTRODUCTION
The documents that are exchanged between buyers and sellers which are binding on both parties are called source documents in accounting. The source documents are used to prepare books of original entries. This unit explains one of the subsidiary books of account, purchases day book.
2.0 OBJECTIVES
At the end of this unit, you should be able to:
i. Explain the purchases day book ii. Prepare purchases day book.
iii. Explain the relationship between purchases and discount.
3.0 MAIN CONTENT
3.1 Purchases Day Book
An invoice is exchanged between a buyer and seller of goods and those that render services.
To the seller, the invoice is used to prepare the sales day book. But for the buyer, the same invoice serves as the source document for the preparation of purchases day book. Another name for purchases day book is purchases journal.
Purchases day book is a subsidiary book of account used to record all goods bought and services received on credit from a third party in the order in which they occurred irrespective of the amount involved. The purchases journal is not an account because it does not have a debit or credit side, and neither can cash purchases nor other cash and bank transactions be recorded in it.
After transferring accounting information from the source documents – purchases invoice – to the purchases day book, the value of credit sales which are first recorded in the purchases day book will be transferred individually to the respective suppliers account in the ledger (see
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unit 12). The total of all credit purchases as recorded in the purchases journal for a particular period, usually a month, is transferred to the debit side of the purchases account in the ledger.
The process of transferring from the purchases day book to the ledger is called posting. This is achieved for all credit purchases by crediting the supplier’s or seller’s (creditor) account with individual amount of each supplier, and debits the buyer’s (purchases) account. You can see unit 12 that focuses on the actual posting of books of original entries to their different accounts. Examples of transactions that require the preparation of purchases day book are treated below.
Example 1: The credit purchases of Ball Ventures for the month of June 2015 are stated below. You are required to prepare the purchases day book of the business for the month.
N
June 2 Jesuyemisi 36,200
June 5 Mrs Imelda 41,000
June 10 Miss Tijani 63,234
June 12 Big Box Enterprises 98,765 June 20 Safiya Investment 123,456
June 22 Obioru Limited 62,080
June 25 Umaru Jude and Co. 43,000
June 27 Caleb Joshua 465,960
SUGGESTED SOLUTION TO EXAMPLE 1
Ball Ventures Purchases Day Book For the month of June 2015
Date Particular Amount (N)
June 2 Jesuyemisi 36,200
June 5 Mrs Imelda 41,000
June 10 Miss Tijani 63,234
June 12 Big Box Enterprises 98,765
June 20 Safiya Investment 123,456
June 22 Obioru Limited 62,080
June 25 Umaru Jude and Co. 43,000
June 27 Caleb Joshua 465,960
Total purchases for the month transferred to purchases account
933,695
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Example 2: The following credit purchases for the month of January 2016 relate to the business of KogiEkiti Enterprises.
January 4. 16 bags of cement from Gombe Global Business at N1,500 each
January13. 12 packets of roofing sheet from Mr. Oyo Ibadan at N4,110 per packet and 5 dozens of roofing nail at N220 per dozen.
January 23. 4 tons of iron rods from Kano Limited for N27,840.
January 28. 3½ dozens of roofing nail from Enugu Investment at N2,440 a dozen.
You are to prepare the purchases journal for KogiEkiti Enterprises for January 2016.
SUGGESTED SOLUTION TO EXAMPLE 2
KogiEkiti Enterprises Purchases Journal For the month of January 2016
Date Particulars Details Amount (N) 4-1-2016
Gombe Global Business
16 bags of cement at N1,500 each 24,000
13-1-2016 Mr. Oyo Ibadan
12 packets of roofing sheet at N4,110 per packet
5 dozens of roofing nail at N220 per dozen.
49,320
1,100 50,420
23-1-2016 Kano Limited
4 tons of iron rods. 27,840
28-1-2016 Enugu Investment
3½ dozens of roofing nail at N2,440 a dozen.
8,540
Total purchases for the month debit to purchases account
110,800
Example 3: Abuja and Jos International Business Limited purchased the following goods on credit for resale in the month of October 2016. You are required to prepare the company’s purchases day book for the month.
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On October 1, the company received goods worth N33,750 from Lagos Ventures. On October 13, Kaduna Warri Enterprises supplied 15 pieces of calculator at N8,330 each. 22 pairs of shoe at N6,520 per pair; 15 pieces of mobile handset at N80,950 each and another starter pack costing N1,500 were received from Victoria Island Concepts Limited on October 25.
SUGGESTED SOLUTION TO EXAMPLE 3
Abuja and Jos International Business Limited Purchases Day book For the month of October 2016
Date Particulars Details Amount (N)
October 1 Lagos Ventures 33,750
October 13 Kaduna Warri Enterprises
15 pieces of calculator at N8,330 each 6,250
October 25 Victoria Island Concepts Limited 22 pairs of shoe at N6,520 per pair.
15 pieces of mobile handset at N80,950 each.
Starter pack
143,440 1,214,250
1,500 1,359,190
Total purchases for the month debit to purchases account
1,399,190
3.2 Purchases and Discounts
The discount available for buying goods on credit at the point of purchase is trade discount.
The trade discount can be stated as a percentage of the purchase price or a uniform amount that varies with purchase value. Where trade discount is given on credit purchases, the discount value will be deducted from the purchase value in the invoice. The purchaser will owe the seller the purchase value less the trade discount. It is the net price that will be recorded in the supplier’s or seller’s account.
Example of credit purchase transactions that include discount is treated below.
Example 4: Uche Joy purchased the following goods on credit in the month of March 2016.
March 1. Purchase from AdeyemiN20,750
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10. Purchase 5 pieces of calculator for resale from Bako at N1,250 each 18. Bought from Florence 7 pairs of shoe at N1,400 per pair; 15 pieces of
mobile handset at N6,200 each and another starter pack costing N22,000.
Trade discount of 3% was received.
You are required to prepare the purchases journal to record the above transactions.
SUGGESTED SOLUTION TO EXAMPLE 4
Uche Joy
Purchases Journal For the month of March 2016
Date Particulars Details Amount
1/3/2016 Adeyemi 20,750
10/3/2016 Bako
5 pieces of calculator at N1,250 each 6,250 18/3/2016 Florence
7 pairs of shoe at N1,400 per pair 15 pieces of mobile handset at N6,200 each
Starter pack
Less trade discount 3%
9,800 93,000 22,000 124,800
3,744 121,056
Total purchases for the month debit to purchases account
148,056
4.0 CONCLUSION
The invoice is the main source document used in preparing purchases day book for different organisations. The purchases day book or purchases journal record all credit purchases for goods and services irrespective of the amount involved. The purchases journal contains the name of the seller, item purchases, the price and discount received, if any.
SELF ASSESSMENT EXERCISE 1. Explain purchases day book.
2. What is the relationship between purchases and discount?
3. The following credit purchases relate to the business of Mr.Yobe Rivers for August 2015. You are to prepare the purchases day book from the information below.
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August 2. 14 bags of rice from Mr OgunMagboro at N9,780 per bag.
16. 7 packets of sugar from Calabar Edo Ventures at N5,550 per packet and 3 dozens of onion at N220 per dozen.
19. 5 tons of flour from Apapa and Company at N7,840 per ton.
27. 72½ dozens of egg from Farm Business Investment at N940 a dozen.
5.0 SUMMARY
In this unit, we explain the use of invoice in recording the purchases day book and how the purchases day book is recorded from the invoice when there is discount or not. The
relationship between purchases and trade discount is also covered.
6.0 TUTOR-MARKED ASSIGNMENT
Question 1: Ondo-Zaria Investment Limited purchased the following goods on credit in the month of October 2016.
Goods bought from Yola Ventures N620,750 on October 4. On October 17, he received 5 pieces of computer from Wukari Enterprises at N120,560 each. On October 29, Ijebu Global Ventures supplied 24 pairs of shoe at N17,000 per pair; 25 pieces of standing fan at N15,730 each and another 4 standing fan costing N55,750 from IbejuLekki Limited.
You are required to prepare the purchases day book to record the above transactions.
Question 2: The following credit purchases were made in the month of June 2015 by