Purchased Merchandise For Cash / Bank Journal Entry

What Two Accounts Are Affected When A Business Purchases Merchandise For Cash

Purchased merchandise or goods purchased for cash journal entry is usually recorded by a debited to a Purchases Account and a credit to a Cash Account or Bank Account (if the payment is made through check or cheque).

Example, Mr. A is a sole owner of his business purchased merchandise for cash Rs. 5000 from the supplier, Mr. B. What is the journal entry for Cash Purchases and what is the effect of cash purchases transaction on the accounting equation?

The journal entry to record for cash purchases is shown below:

                                                                            Purchases a/c  5000

 

                                                                                                              Cash a/c  5000

 

                                                                                  (Merchandise Purchase for Cash)

Note: In the above entry, if the owner purchased merchandise through cheque or check, then we only replace cash account with the bank account and rest of the entry will be the same i.e., purchases account is debited and bank account is credited.

The Effect Of Purchased Merchandise On The Accounting Equation

                                                Assets     =       Liabilities     +      Owner’s Equity

                                                 -Cash      =              0              +        (-Purchases)

                                                 -5000      =              0              +         (-5000)

The purchases is the result of profitable activities or operational activities of the owner of the business and as it is created so it has a debit balance of Rs. 5000 which is a unusual balance for owner’s equity account, so it is deducted from owner’s equity account on the right side of the accounting equation. Cash, as a current asset, is decreased by Rs. 5000 as it is going out of the business, so it is deducted from assets on the left side of the accounting equation. After the effect of this transaction, the accounting equation still in balance.