The Accounting Treatment Of Credit Purchases In Accounting Equation

The effect of Credit Purchases on the Accounting Equation is that it is deducted from Owner’s Equity or Equity as credit purchases is the result of the activities of the owners of the business to purchase merchandise or goods on account / credit for reselling purposes in order to earn profit for the business from this activity during the accounting period.

For Example, if Mr. A purchased goods worth Rs. 15000 from Mr. B on account, then the credit purchases journal entry is recorded in the Purchases Journal as shown below:

                                                     Purchases a/c  15000

                                                                            Mr. B  15000

  (Purchased Goods From Mr. B On Account)

Now, the accounting treatment of credit purchases in the accounting equation is shown below:

            Assets  =                       Liabilities                     +               Owner’s Equity

                          = -Accounts Payable - Mr. B (Rs. 15000)      +      {- Credit Purchases (Rs. 15000)}