Recording purchases Flashcards
what is a ‘purchase’
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
where would you record goods that are bought to be used within the business and not as part of their trade
expense or asset account
what are the documents involved in making a purchase? (5)
- a catalogue or price list
- a quote
- a purchase order
- a delivery note
- a goods received note
what is a catalogue/ price list
the buyer will have access to a price list or catalogue to view the prices of goods or services
what is a quote?
a quote for the goods or services a buyer would like
what is a purchase order?
the buyer making a firm order for the goods/ services
what is a deliver note?
the buyer will receive this along with the goods they bought and this lists the items bought
why are there two copies of the delivery note
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
what is a goods received note?
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
what is an invoice?
the buyer receives this from the seller in the post/email a day or so later, the companies decide when to pay this
what is a returns note?
this accompanies any faulty goods on their way back to the seller, a list of what and why they have been returned
what is a credit note?
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
what is a statement of account?
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
what is a remittance advice?
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
what do you need to check on the invoice against the purchase and delivery note? (8)
- quantity
- unit price
- correct trade or bulk discount has been applied
- correct ppd has been offered
- correct VAT
what are the two main types of electronic trading?
- e-commerce
- EDI
what is EDI?
electronic data interchange, where businesses are linked by computer so that purchases, invoices and payments can be made electronically.
how do you record purchases on credit?
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’
how do you record purchases in the double entry? (subsidiary)
- 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
how would the double entry look in general ledger?
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.
how to deal with purchase returns?
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.
which account does the gross amount go into and the net amount?
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
what is a batch control system?
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
how to deal with discounts received?
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
when may discrepancies occur? (4)
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.
