What Are Credit Purchases In Accounting - Explanation With Examples

Credit Purchases Definition And Meaning

When goods are purchased by the business on Credit or on Account for reselling purposes, then we can say that Credit Purchases take place in Accounting. Like Purchases, credit Purchases include both services and supplies but these are created on account or credit. Due to it, two parties Accounts Receivable and Accounts Payable are created that is a Current Liability for the buyer who will pay to seller or supplier after specified time period From the point view of buyer’s business, he records Credit Purchases while from seller or supplier’s business it is a Credit Sales and record Accounts Receivable as a Current Asset in the Accounts Receivable Subsidiary Ledger.

Credit Purchases Journal Entry / Journal Entry For Credit Purchase Of Goods / Credit Purchases Double Entry

Example: Let say that Mr. A purchased 2 tables from Mr. B for Rs. 10000 (Each Rs. 5000) on Account, then Mr. A is the buyer and he is liable to pay Mr. B, Rs. 10000 on Due Date or Before due date.


Purchases Account   10000


                                Mr. B

(Purchased Tables from Mr. B On Account)

You May Also Read Out, "How To Calculate Credit Purchases With Formula"

Bought goods on account or credit, in online store, credit purchases made by customers are all the examples of Credit Purchases

The Concept of Accrual Basis of Accounting emphasizes on Credit Purchases and say that it should be recorded as soon as it incurs whether the cash is paid or not.

Purchases Day Book is used to record Journal Entries related to Credit Purchases. These Journal entries are transferred to Purchase T Account or Ledger and then this Ledger is also closed to Income Statement or Trading & Profit And Loss Account at the end of Accounting Period.

Credit Purchases Debit Or Credit

As Credit Purchases is a direct expense, so it has no balance. However, when it incurs, we debit it and when we close it to Income Statement, then we credit it.

Another Name For Credit Purchases

Purchases Outward and Return from Suppliers as we purchase goods from our supplier on credit or account and to whom we returned the goods due to valid reasons such as damaged goods, defective goods, etc.

Credit Purchases Shown In The Balance Sheet Or Income Statement

Basically, credit purchases are recorded in the Income Statement or Profit And Loss Account. As these are Contra Expense Accounts, so these deducted from Total Purchases and since these are not having any balance so, these are closed at the end of the accounting. So, these are not shown on the balance Sheet.

So, we can say that Credit purchases are the goods purchased by the business on Account or Credit from Suppliers and which is a direct expense for the business incurred in order to earn revenue necessary for the running of the business.