Cash And Credit Purchases Journal Entries With Examples

Here we study about the Cash And Credit Purchases Accounting Journal Entries with the help of Simple Examples.

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As we know that, Purchases is related to those Goods that are purchased by the business for resale purposes. Goods can be purchased for Cash or On Account. So, basically there two kinds of Purchases:

1. Cash Purchases 2. Credit Purchases

1. Cash Purchases

Goods Purchased by the business for Cash are known as Cash Purchases.

Cash Purchases Journal Entry With Example

For Example, if the company purchased goods worth Rs. 50000 From Mr. (Supplier) For Cash, then it is recorded in the Accounting Journal of the company as:

Purchases a/c 5000

                          Cash a/c 50000

(Goods Worth Rs. 50000 Purchased From Mr. For Cash)

2. Credit Purchases

 

Credit Purchases means that goods purchased from suppliers of the business on Credit or without making any payment. In fact, payment will be made on future date.

Credit Purchases Journal Entry With Example

For Example, if the the business purchased goods worth Rs. 50000 From Supplier A, then this is a Credit Purchase Accounting Journal Entry in the book of Company. The accountant of the company records the following Accounting Journal Entry in the book of company:

Purchases a/c 50000

                                 Mr. A 50000

(Purchased Goods Worth Rs. 50000 From Mr. A)

Here, you can also see the name of supplier but still it is a Credit Purchases. Why? It is because the word Cash is not mentioned so we can say it is a Credit Purchases as it does not involve any Cash. Obviously, the Cash Payment is made later on to the supplier.

So, you must remember that:

1. If the word On Account or Credit is shown, then it is a Credit Transaction. 
2. If the word Cash is shown, then it is a Cash Transaction.
 3. If the Name of Supplier is shown, then it is a Credit Transaction

Here is the Journal Entry For Goods Purchase on Resale Purposes, Because, the business must purchase the goods for resale purposes, otherwise, it will become the Fixed or Non Current Asset of the business. For Example, if the business purchased the Office Equipment for the use of in the Office and not for Resale Purposes, then it can not be considered as Purchases but it is treated as Non Current Asset of the business.

When the company purchased goods from Suppliers, then is liable for the company to make payment to suppliers in time, so these suppliers are Accounts Payable for the company.

So, it is all about Cash And Credit Purchases Accounting Journal Entries.