Both Purchase Book and Purchase Account relate to the recording of stock transactions, yet they are not the same. While Purchase Book is a component of the Journal, Purchase Account is part of Ledger. The basic difference between these two is that Purchases Book is used to record credit transactions only whereas Purchases Account is a summary of both cash and credit purchases.
What is a Purchase Book?
A purchase book is used to record credit purchases of goods dealt in by a firm or stores and materials used in the factory. Firms usually maintain a separate register to record credit transactions of these purchases and it is named the “Purchase Book or Purchase Journal”.
The total of this book represents the total amount of credit purchases of goods made during a certain period.
What does a Purchase Book look like?
It looks like this:
Date: To record the date of purchase
Particulars: This column is used to record the name of the supplier from whom goods are purchased, the name of the articles purchased as well as respective quantities.
L.F. stands for Ledger Folio. It is the reference number of the ledger account where the entry is posted from the purchases book.
Details and Amount column: The amount for each purchase made is first entered in the “details column”. For each purchase, the charges for packaging are added and a trade discount received if any is deducted. The net amount to be paid to the supplier is recorded in the extreme right-hand column, i.e., “amount column”.
Remember, this book is used solely for credit transactions. No cash transaction is recorded here. In addition, credit purchases of things other than goods or materials (e.g., furniture, laptops) are also not recorded here.
Posting the entries for Purchases Book
As we see above, Purchase Book records the names of the parties from whom goods are purchased on credit. These are creditors or trade payables. Hence, the amount purchased from each creditor (as shown in the Purchase Book) is individually credited to his respective account.
On the other hand, the weekly or monthly total from Purchases Book is also debited to the “Purchases Account” to indicate the receipt of goods. Say for example, in the above instance, the Purchases Account will be debited by Rs. 1,800 (or total sundries) whereas M/s Brown & Co.’s Account willbe credited by Rs. 1,800.
Now let us see how a Purchases Account is prepared.
What is a Purchase Account?
A Purchase Account is a ledger account in which entries of both cash and credit purchases of goods are recorded. It is just like any other ledger account and gives details of total purchases of stock (both cash and credit) made during a certain period.
Format of Purchase Account
** For purchase of goods on credit the amount of which is not recorded in Purchases Book.
As we saw earlier, the total of the Purchases Book is transferred to the Purchases Account to indicate the total amount of goods or materials purchased on credit. This total is shown on the debit side.
Further, cash purchases of stock are also posted to this account from the Cash Book or relevant journal entries.
Also, J.F. stands for Journal Folio. It is the reference number of the Journal Book from where the entry is posted to the purchases account.
Transfer to Trial Balance
We know that all ledger accounts find a place in Trial Balance and so does Purchases Account.
This account has a debit balance. And the balance of purchases account is transferred to the Trading and Profit and Loss Account to determine the cost of goods sold and profit/loss during the period.
Since this account is closed at year-end, it is normally classified as a nominal account. However, another view is also possible that this account should be classified as a real account as it represents the flow of goods.
A comparison table showing the differences between Purchase Book and Purchase Account
Even though both Purchase Book and Purchase Account involve transactions of stock that a firm deals with, they can be differentiated on many grounds.
In the table below, we have compiled the main differences between the two:
|Basis||Purchase Book||Purchase Account|
|Nature||It is a part of the Journal (precisely a Subsidiary Book).||It is a part of Ledger.|
|Cash purchase||Cash purchases are not recorded in this book as they are recorded in the Cashbook.||Both cash and credit purchases are posted here.|
|Capital purchase||Credit purchases of fixed assets or any other item besides goods/materials are not recorded here. They are journalized in the Journal.||This is not a difference though. Purchase Account too records expenditure related to the purchase of stock only. No capital expenditure is recorded here.|
|Source of recording||Entries in Purchases Book are made from the invoices received from the suppliers.||Posting in Purchases Account is made from journal entries and Subsidiary Books/Cash Book.|
|Transfer of balance||Balance is transferred to Purchases Account.||Balance is transferred to P/L Account.|
|Debit/Credit||There are no debit and credit columns.||Debit and credit columns are there in Purchases Account.|
I hope the above comparison is useful to you!
Thanks for reading!
You might also like: