Recording purchases

Question 1

what is a ‘purchase’

Answer 1

buying goods with the intention of selling them as part of the company’s trade, this is not the same as buying equipment to be used within the business

Question 2

where would you record goods that are bought to be used within the business and not as part of their trade

Answer 2

expense or asset account

Question 3

what are the documents involved in making a purchase? (5)

Answer 3

• a catalogue or price list
• a quote
• a purchase order
• a delivery note
• a goods received note

Question 4

what is a catalogue/ price list

Answer 4

the buyer will have access to a price list or catalogue to view the prices of goods or services

Question 5

what is a quote?

Answer 5

a quote for the goods or services a buyer would like

Question 6

what is a purchase order?

Answer 6

the buyer making a firm order for the goods/ services

Question 7

what is a deliver note?

Answer 7

the buyer will receive this along with the goods they bought and this lists the items bought

Question 8

why are there two copies of the delivery note

Answer 8

one for the buyer and the seller so that everyone knows this has been delivered the signed deliver note is proof that the buyer has received the goods

Question 9

what is a goods received note?

Answer 9

a document used by some companies to tell the receiving staff what it expected on the deliveries, to which the buyer will usually date and sign saying that the goods were received in good condition

Question 10

what is an invoice?

Answer 10

the buyer receives this from the seller in the post/email a day or so later, the companies decide when to pay this

Question 11

what is a returns note?

Answer 11

this accompanies any faulty goods on their way back to the seller, a list of what and why they have been returned

Question 12

what is a credit note?

Answer 12

this is sent to the buyer from the seller with the amount reduced from the invoice due to faulty goods, the credit note should be taken as a discount and the original invoice should not be altered

Question 13

what is a statement of account?

Answer 13

this is received by the buyer and lets them know what is owed and when it is due, this will also be checked by the buyer against their own records

Question 14

what is a remittance advice?

Answer 14

when the buyer pays for the invoice they will send a document to state what the payment is for so both parties know what is paid and what is not

Question 15

what do you need to check on the invoice against the purchase and delivery note? (8)

Answer 15

• quantity
• unit price
• correct trade or bulk discount has been applied
• correct ppd has been offered
• correct VAT

Question 16

what are the two main types of electronic trading?

Answer 16

• e-commerce
• EDI

Question 17

what is EDI?

Answer 17

electronic data interchange, where businesses are linked by computer so that purchases, invoices and payments can be made electronically.

Question 18

how do you record purchases on credit?

Answer 18

similar to recording sales on, so it will be recorded in the book of prime entry (pdb) and the columns are divided into ‘total’ ‘VAT’ ‘purchases’
and then ‘other expenses’

Question 19

how do you record purchases in the double entry? (subsidiary)

Answer 19

• firstly payments are credited in our supplier accounts, in the payables ledger
• the entries added up are debited in the purchases account in the general ledger
• the other expenses are debited and debit the VAT account also

Question 20

how would the double entry look in general ledger?

Answer 20

to avoid all the ‘clutter’ there will be a payables ledger control account so this account will be credited
- the purchase account, VAT account and other other expenses account will be debited.

Question 21

how to deal with purchase returns?

Answer 21

when we receive a credit note we will enter this into the purchases returns day book,
make sure this is also entered into the customer accounts in the payables ledger as debit entries,
and also do the same in the general ledger by added a purchase returns account and crediting the amount and then credit the VAT account and debit payables ledger control account accordingly.

Question 22

which account does the gross amount go into and the net amount?

Answer 22

the gross amount is in the payables ledger and payables ledger control account and the net amount is recorded in the purchases account and purchase returns account

Question 23

what is a batch control system?

Answer 23

it is similar to a day book and used instead of it. all the invoices and purchases will be listed and totalled, the operator enters all the invoices and the computer would have recorded it and the total is checked to the batch total, this can also be used for purchase and sales invoices

Question 24

how to deal with discounts received?

Answer 24

this will be entered in discounts received daybook,
these will be transferred into supplier accounts as debit entries like purchase returns
then these totals will be transferred, to the general ledger the net amount for discounts will be credited in the discounts received account and credit the VAT amount and then debit the gross

Question 25

when may discrepancies occur? (4)

Answer 25

when the supplier send you a statement you should check it against the supplier account in the receivables ledger
- the invoice/ credit note appears to be for the wrong amount
- the invoice/ credit note appears on the statement but not in the payables ledger
- the invoice/ credit note appears in the payables ledger and not the statement
- the invoice/ credit note appears twice on the statement.