How To Calculate Credit Purchases

When The Business bought goods, then we can say that the business made purchases for the Current Accounting Cycle. Purchases Can be Cash Purchases or Credit Purchases. When Goods Purchased From Suppliers (Accounts Payable) of the business, then Credit Purchases are made and when goods purchased by the business for Cash, then Cash Purchases are created. Here we are concerned with How To Find the value of Net Credit Purchases?

Read Out Also, “How To Calculate Credit Sales”

Credit Purchases Calculation And Formula By Using A Balance Sheet Account (Accounts Payable Account)

Credit Purchases are calculated by Preparing Total Accounts Payable / Creditors T Account. It is to be noted that Net Credit Purchases Formula may also be used to calculate Net Credit Purchases. Opening Accounts Payable / Creditors is the Ending Balance of Previous Accounting Period. However, there is no Opening Accounts Payable for the business, if the business just starts in the first Accounting Period. Closing Accounts Payable is the Ending Balance for the Current Accounting Cycle or Period. Discount Received is the income and it is recorded on the debit side of Accounts Payable T Account. Purchase Return is also recorded on debit side. Cash Paid To Suppliers reduces Creditors, so it is recorded on debit side as a reason. Balance Figure is Credit Purchases (in this case) which is required in the calculation.

                                                Total Accounts Payable T Account Format

                                                                      ABC Company

                                                         For The Current Account Cycle

                                          Rs.                                                                             Rs.

Cash Paid To Suppliers    XXX                               Opening Balance b/d          XXX

Purchase Returns            XXX                                 Purchases                         XXX

Discount Received           XXX

Closing Balance c/d         XXX

                                      _______                                                                      _______

                                      _______                                                                      _______

 

Example: If the following information of Company ABC for the Accounting Period of June, 2018 is given then calculate Credit Purchases.

Credit Purchases Formula

Beginning Accounts Payable = Rs. 8000, Ending Accounts Payable = Rs. 6000, Cash Paid To Suppliers = Rs. 34000, Purchases Returns = Rs. 1500, Discount Received = Rs. 1000.

In Formula Form

Credit Purchases = Closing Accounts Payable + Cash Paid To Suppliers + Purchases Returns + Discount Received - Beginning Accounts Payable

Credit Purchases =  6000  + 34000 + 1500 + 1000 - 8000

Credit Purchases = Rs. 34500

                                             Total Accounts Payable T Account Format

                                                                   ABC Company

                                                          For The Current Account Cycle

                                          Rs.                                                                               Rs.

Cash Paid To Suppliers  34000                           Opening Balance b/d               8000

Purchase Returns            1500                             Purchases (Balance Figure)  34500

Discount Received           1000

Closing Balance c/d         6000

                                         

                                     _________                                                                     _______

                                       

                                       42500                                                                             42500

                                     _________                                                                     _______

                                     _________                                                                     _______

                                    

                                    

 

So, we can say that Credit Purchases are Rs. 34500, Similarly, other missing figures can also be found out by preparing Total Accounts Payable / Creditors T Account.