How to make Purchases and Sales Journal Entries

How to make Purchases and Sales Journal Entries

In this article, we will know purchases and sales journal entries. Friends, if you have not read the first part of the journal entries, then read that part first. Only then will you understand this article. Because in addition to the format of journal entries, golden rules of accounting are also explained. Friendly accounting begins with journal entries. So it is important for you to understand its rules because, without it, accounting is like that dream, like dreaming of crossing the sea on foot.

Friends, before knowing about the purchases and sales journal entries, it is important to know what is its definition: –

Purchase – Purchase of goods obtained for the purpose of own use, sale and manufacture of goods is called purchasing. Keep in mind that borrowing or cash purchase of assets is not a purchase in accounting.

Sales – A transfer is a sale of goods purchased or manufactured in exchange for a return. In other words, selling goods.

Purchases and Sales Journal Entries:

So friends, let’s try to give you more information about purchases and sales journal entries. For this, let’s look at some transactions.

  1. Started business with cash 1,50,000
  2. Withdrawn cash from business 30,000 for personal use.
  3. Goods Returned to X 10,000
  4. Goods Returned by Y 8,000

We explain these four transactions in details:

Transaction -1. Started business with cash 1,50,000

What would be the journal entry if you started the business?
If you start a business, then cash is coming in the business here. Because you have invested in business. In other words, the business is different and the owner is different.
So here is the real account rules:
Debit what come in
Credit what goes out

What’s coming in Business – cash. that means that cash has to be write in debit.
Cash A / c Dr. 1,50,000
Now here, something is going out of business – no.

Therefore, see the rules of Personal Account:
Debit the receiver
Credit the giver
Who is the giver here – owner. Now, the owner has given money in his business. Therefore it represents as capital. Hence, owner will not be write here, capital will be written to credit the giver.
To Capital A / c 1,50,000 cr.

Now the journal entries will be as follows –
Cash A / c Dr. 1,50,000
To Capital A / c 1,50,000
(Being business started with cash)

Transaction – 2. Withdrawn cash from business 30,000 for personal use:

Similarly, in another transaction the owner withdraws money. Since, the person who withdraws money from his business is himself the owner of the business. Therefore, the owner’s name will not be written here either.
As per accounting rules,
Debit the receiver

Who is the receiver here – Owner. Since the owner invests money in the business, it is capital. Similarly, when the owner withdraws money from the business. Then the drawing A / c will be Debit.
Drawing A / c Dr. 30,000
In other words when the owner withdraws from his business for his personal purposes. Then, represent it as Drawing a / c.

On the other hand, Cash will be a / c credit because, cash is being transferred from the business to the owner’s account. This means, money is going out of business. Credit whats goes out, according to accounting rules.
To Cash a / c. 30,000 (Cr.)

So now you will do journal entries like this –
Drawing A / c Dr. 30,000
To Cash a / c 30,000

(Being cash withdrawal for personal purpose)

Transaction 3. Goods Returned to X 10,000:

You returned goods worth Rs 10,000 to X. This means that you purchased goods from X. There will be some deficiency or any fault or material damage in the goods you have returned. So you returned the goods.
So friends, during Journal Entries, Goods Returned is represented as Purchase Return. According to the rules, Debit the receiver. Because, here is the receiver’s name. Then the entries will be –
X’s A / c Dr. 10,000

Now, because you returned the goods. The amount spent in purchases was canceled. This means that you are now benefiting. Therefore it will be credit under nominal rules. It is represented as purchase returned. Because, it is minus the purchased goods.
To Purchased Returned a / c 10,000

So now in the journal entries you will do like this –
X’s A / c Dr. 10,000
To Purchased Returned a / c. 10,000

(Being goods returned to X)

Transaction 4. Goods Returned by Y 8,000:

This is the opposite of Purchases return. Because, such a situation occurs when you sold goods to a party and for some reason returns the goods. In other words, when you return some part or all of the goods sold. They then represent it as a sales return.
Because, when you sold the goods, there was a sales or income account credit in your account. But, now the goods are coming back. So expenses are being incurred. Therefore, it will debit.
Sales Returned A / c Dr. 8,000

Now, who is the giver by the rule of personal account – Y. Therefore, Y’s account will have credit.
To Y’s A / c 8,000
Thus, the entry will be –
Sales Returned A / c Dr. 8,000
To Y’s A / c. 8,000
(Being sales returned by Y)

Friends, hope you understand this article purchase and sales journal entries. But after that, definitely read our article Discount journal entries. You should continue the practice of journal entries continuously. Thank you.

Read more articles: Journal Entries and its Rules,  Accounting and its Feature, Function, Objectives and Requirements

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