Purchased Merchandise On Account Journal Entry

Merchandise Purchased On Credit Journal Entry

The purchased of merchandise or goods or items or inventory or stock on account or credit resulted in the debit to Purchases Account and a credit to Accounts Payable / Sundry Creditors Account.

The journal entry to record is shown as below:

                                                                                 Purchases a/c  XXX

 

                                                                                                          Accounts Payable a/c  XXX

 

                                                                      (Merchandise Purchased On Account / Credit)

Note: Purchases on account is also called “Credit Purchases”

The Effect Of Purchasing Merchandise On Account / Credit On The Accounting Equation

Example: Mr. A, as a Sole Proprietor, purchased merchandise of Rs. 10000 from his supplier, Mr. B on account during the accounting period. What is the journal entry to record in the Books of Accounts of the business and the effect of this business transaction on the accounting equation?

The entry to record for purchased merchandise is shown below:

                                                                                        Purchases a/c  10000

 

                                                                                                                      Mr. B 10000

 

                                                                           (Purchased Merchandise From Mr. B On Credit)

                                              Assets      =       Liabilities                 +   Owner’s Equity

                                                   0           =    +Accounts Payable    +       (-Purchases)

                                                   0           =    +10000                         +        (-10000)

As purchases is the result of operating activities or profitable activities of the owner of the business and since it has normal balance on debit side when it is created, so it decreases owner’s equity account on the right side of the accounting equation. On the other hand, the accounts payable account as a current liability account is increasing as the business is liable to pay to suppliers for merchandise purchased on account, so it is added to liabilities on the same right side of the accounting equation. No change will be made on the left side of the accounting equation but still the accounting equation remains in balance.