Financial Management & Cost Accounting

Module 2. Accounting procedure

Lesson 10
PURCHASE BOOK AND SALES BOOK

10.1 Purchase Book

A purchase book records all the “credit purchases” of the business firm. The form of purchase book is as follows

Date	Name of Supplier	L .F	Inward invoice No.	Amt (Rs.)

Here it is important to Note that:

1. Cash-purchases are not entered in this book (Because they are recorded in the cash book)

2. Only “credit purchases” of the “goods dealt in” by the firm are recorded. (i.e. which are meant for resale).

Credit purchases of the goods/materials which are not dealt in by the firm are not recorded in this book.

For example, if a firm purchase by credit- some furniture, computer, any asset etc. then there credit purchases are not recorded in the purchase book, because this are not the goods in which the business firm deals (i.e. these goods are not meant for resale, moreover the firm may not in the business of buying and selling of such furniture, equipments etc.). Hence, as there is no separate book to record such credit purchase, these purchases are to be recorded in the “journal proper”.

Illustration 10.1

Consider the following transaction of a furniture showroom and enter them into purchase book and also post them into ledgers.

2005

March 1: Purchased on credit from ‘Vijay furniture, Baroda

10 Chairs @ Rs.200 per chair

5 tables @ Rs.1000 per table

And paid cartage charges Rs.100

March 5: Purchased from ‘R and C Company, Baroda’

10 steel cabinets @ Rs.2000

Delivery charges paid Rs.150

March 10: Purchased on credit from SFC, Baroda

50 chairs @ Rs.150

Lers trade discounts @ 10 %

March 11: Purchase on credit a Type writer for office use from JK and Co.

@ Rs.800

March 12: Purchased for cash from “Subhash stationery marts”

10 notebooks @ Rs.8 per notebook.

PURCHASE BOOK

Date	Particulars (Name of supplier and invoice No.)	L.F	Details	Amount(Rs.)
2005 March 1	Vijay Furniture, Baroda 10 chairs @ Rs200 5 tables @ Rs.1000 Cartage charges Invoice No. _____Dated____		2000 5000 100	7100
March 5	R and C Company, Baroda 10 steel cabinets @ Rs.2000 Cartage charges Invoice No. _____ Dated_____		20,000 150	20,150
March 10	SFC, Baroda 50 chairs @ Rs.150 Less: Trade discount 10 % Invoice No. _____ Dated _____		7500 750	6750
	Total			34,000

NOTE:

(1) Transaction of 11^thMarch 2005, is ignored because it is a credit purchase of an item (typewriter) which is not meant for re-sale and it is not an item of normal business of the firm. It will be recorded in journal proper

(2) Transaction dated 12^th March has been ignored because it is a cash purchase it will be recorded in cash book

The entries in the respective ledgers of the supplier and purchase, will be as under-

LEDGER

Vijay Furniture, Baroda

Dr. Cr.

Date	Particular	Amt.	Date	Particular	Amt.
			2005 March 1	By purchase	7100

R and C Company, Baroda

Dr. Cr.

Date	Particular	Amt.	Date	Particular	Amt.
			2005 March 5	By purchase	20,150

SFC, Baroda

Dr. Cr.

Date	Particular	Amt.	Date	Particular	Amt.
			2005 March 10	By purchase	6750

Purchase Account

Dr. Cr.

Date	Particular	Amt.	Date	Particular	Amt.
2005 March 31	To purchase as per Purchase Book	34,00

10.2 Sales Book (Also called sales day book)

It is used to record all the “credit sales “of goods in which the firm deals in. Credit sales things other than that goods dealt in by the firm, are not entered in sales book, rather they are entered in “journal proper”. The ruling for sales book is similar to a purchase book, except one thing –in the particulars column.

Consider the following illustration-

Illustration 10.2

From the following data write up the sales day book of “Shyamal Traders”.

June 1: Sold to Prakash Traders 100 bags of tea @ Rs.65 per bag. less trade discount @ 5%.

June 8: Sold to “Rao Traders” 10 bags of milk powder @ Rs.400 per bag. less trade

Discount @ 15%.

June 14: Sold old furniture to “M/S Sunil and Co.” On credit Rs.4500

June 15: Sold to “lotus (p) ltd.” 10 bags of sugar @ Rs.2000 per bag less 10% trade Discount.

June 20: Sold 10bags of sugar to “sunflower enterprise” @ Rs.2000 for cash.

SALES DAY BOOK

Date	Particular (Name of customer and invoice No.)	L.F	Details(Rs.)	Amount(Rs.)
June 1	Prakash Traders 100 bags of Tea @ 65 Less: Trade discount @ 5% Invoice No. ____ Dated_____		6500 325	6175
June 8	Rao Traders 10 bags of milk powder @ 400 Less: Trade discount 15% Invoice no. _____ Dated_____		4000 600	3400
June 15	Lotus (P) ltd. 10 bags of sugar @ 2000 Less: Trade discount 105 Invoice No. _____ Dated _____		20,000 2000	18,000
	Total (This total is periodically transferred to the “credit side of sales Account”)			27,575

These figures are debited to the individual accounts of the respective customers.

10.3 Purchase Return Book (Also called Return Outward Book)

We know that , all the credit purchases of the goods dealt-in by the firm are recorded in the “Purchase Book “But, it is possible that the firm may return some of these goods (purchased on credit), the return of goods to the various reasons such as- defective, damaged or excess quantity etc. We can see that, when credit purchases are made, the transactions are recorded on the “debit side” of purchase account. Similarly, the goods should be returned by “crediting” the purchase account. “But in practise, usually a separate Book, called “purchase return Book” is prepared, Which records all the returns of goods purchased on credit. And the total of this book is periodically transferred to the credit side of purchase account.

Procedure followed at the time of returning the goods by the firm-

1. Preparation of debit note:-

a. Which contains all the information regarding the goods being returned such as quantity, value etc.
b. And , it also specifies the reason for returning the goods
c. It also inform the supplier about the “amount” which is debited to his account as a result of the return of goods.
d. Posting from the purchase book:-
e. The individual eateries of the purchase return book are periodically transferred to the “Debit Side” of the suppliers.