How Bookkeepers Track Purchases with the Purchases Journal

By Lita Epstein from Bookkeeping For Dummies

10 of 12 in Series: The Essentials of Bookkeeping Transactions

Purchases of products to be sold to customers at a later date are a key type of non-cash transaction, recorded in a business bookkeeper’s Purchases journal. All businesses must have something to sell, whether they manufacture it themselves or buy a finished product from some other company. Businesses usually make these purchases on credit from the company that makes the product.

Transactions for purchases bought on credit first enter a bookkeeper's books in the Purchases journal. Each entry in the Purchases journal must indicate the vendor from whom the purchase was made, the vendor’s invoice number, and the amount charged.

In the Purchases journal, the Accounts Payable account is credited, and the Purchases account is debited, meaning both accounts increase in value. The Accounts Payable account increases because the company now owes more money to creditors, and the Purchases account increases because the amount spent on goods to be sold goes up.

The following example shows some store purchase transactions as they appear in the company’s Purchases journal.

The first point of entry for purchases bought on credit is the Purchases journal.

The Purchases journal in the figure has six columns of information:

Date: The date of the transaction.
Vendor Account Credited: The name of the vendor from whom the purchases were made.
PR (post reference): Where information about the transaction will be posted at the end of the month. This information is filled in at the end of the month when you do the posting to the General Ledger accounts. If the entry to be posted to the accounts is summarized and totaled at the bottom of the page, you can just put a check mark next to the entry in the PR column. For transactions listed in the General Credit or General Debit columns, you should indicate an account number for the account into which the transaction is posted.
Invoice Number: The invoice number for the purchase assigned by the vendor.
Purchases Debit: Additions to the Purchases account.
Accounts Payable Credit: Increases to the Accounts Payable account.

At the end of the month, the bookkeeper can just total the Purchases and Accounts Payable columns and post the totals to the corresponding General Ledger accounts. She can refer back to the Purchases journal for details if necessary. However, each invoice should be carefully recorded in each vendor’s accounts so that there’s a running total of outstanding bills for each vendor. Otherwise, the bookkeeper doesn’t know who and how much is owed.