Recording Purchase Transactions (Edexcel IGCSE Accounting)

Cash Purchases

Spec point — IGCSE_ACCOUNTING:S2.132

What is a cash purchase?

• A cash purchase is when the business pays the supplier upfront for goods or services

• The supplier issues the business with a receipt

  • The receipt is used as the source document

• The book of original entry is the cash book

How do I record a cash purchase in the ledger accounts?

• Credit the cash or bank account in the nominal ledger

  • This is because the business is spending cash
  • The asset is decreasing

• Debit the purchases account in the nominal ledger

• Note that no entries are made in the trade payables accounts

  • This is because the goods were paid for straight away
  • Therefore the business does not owe the supplier any money

Worked Example A business buys $50 worth of goods from Halina on 5 January 2024. The business pays in cash upfront. Record this transaction in the ledger accounts for the business.

Answer

Purchases Account

Date	Details	$**	Date	Details	$
Final answer: 2024 Final answer: Jan 5	Final answer: Cash	Final answer: 50

Cash Account

Date	Details	$	Date	Details	**$
			Final answer: 2024 Final answer: Jan 5	Final answer: Purchases	Final answer: 50

Credit Purchases

Spec point — IGCSE_ACCOUNTING:S2.132

What is a credit purchase?

• A credit purchase is when a business pays a supplier later for goods or services

• The business will receive an invoice from the supplier

  • The invoice is used as the source document

• The book of original entry is the purchases day book

How do I record a credit purchase in the ledger accounts?

• Credit the trade payable account in the payables ledger

  • This is because the business owes money to the credit supplier
  • The liability is increasing

• Debit the purchases account in the nominal ledger

• Note that no entries are made in the cash or bank accounts

  • No cash has been exchanged yet

Worked Example A business buys $300 worth of goods from Halina on credit on 10 January 2024. Record this transaction in the ledger accounts for the business.

Answer

Purchases Account

Date	Details	$**	Date	Details	$
Final answer: 2024 Final answer: Jan 10	Final answer: Halina	Final answer: 300

Halina Account

Date	Details	$	Date	Details	**$
			Final answer: 2024 Final answer: Jan 10	Final answer: Purchases	Final answer: 300

Payments to Credit Suppliers

Spec point — IGCSE_ACCOUNTING:S2.132

How could a business pay an invoice to a credit supplier?

• A business could pay by:

  • Cash payment
  • Cheque
  • Bank transfer
  • Telephone transfer

• Cheques and transfers are recorded in the bank account

• Bank statements, cheque counterfoils, remittance advice and receipts are used to record these payments

• The book of original entry is the cash book

How do I record a payment to a credit supplier in the ledger accounts?

• Credit the cash or bank account in the nominal ledger

  • This is because the business is spending money
  • The asset is decreasing

• Debit the trade payable account in the payables ledger

  • This is because the business owes the supplier less money
  • The liability is decreasing

Worked Example A business pays Halina $100 toward an invoice by bank transfer on 11 January 2024. Record this transaction in the ledger accounts for the business.

Answer

Halina Account

Date	Details	$**	Date	Details	$
Final answer: 2024 Final answer: Jan 10	Final answer: Bank	Final answer: 100

Bank Account

Date	Details	$	Date	Details	**$
			Final answer: 2024 Final answer: Jan 10	Final answer: Halina	Final answer: 100

Discount Received

Spec point — IGCSE_ACCOUNTING:S2.132

What is discount received?

• A business might be offered a cash discount by a credit supplier for early repayment of an invoice

  • This is not a trade discount

• The business is receiving a discount from a credit supplier

• The discount received will be recorded on the purchase invoice

• The purchase invoice is used as the source document

  • The terms of the cash discount will be detailed

• The book of original entry is the cash book

How do I record discount received in the ledger accounts?

• Debit the trade payable account in the payables ledger

  • This is because the business owes less money to a credit supplier
  • The liability is decreasing

• Credit the discount received account in the nominal ledger

• You will normally have to record the transaction for a payment at the same time

  • Make sure that the sum of the debit entries equals the sum of the credit entries

Exam Hint Questions will normally:

• Tell you the percentage for the discount allowed
• Tell you that a customer paid an amount in full settlement of their debt

Worked Example A business issues a cheque for $175 to Halina on 12 January 2024 in full settlement of a debt of $200. Record this transaction in the ledger accounts for the business.

Answer

Halina Account

Date	Details	$**	Date	Details	$
Final answer: 2024 Final answer: Jan 11	Final answer: Discount received	Final answer: 25
Final answer: Jan 11	Final answer: Bank	Final answer: 175

Discount Received Account

Date	Details	$	Date	Details	$
			Final answer: 2024 Final answer: Jan 11	Final answer: Halina	Final answer: 25

Bank Account

Date	Details	$	Date	Details	**$
			Final answer: 2024 Final answer: Jan 11	Final answer: Halina	Final answer: 175

Purchases Returns

Spec point — IGCSE_ACCOUNTING:S2.132

What is a purchase return?

• A purchase return is when a business returns some goods to a supplier

  • It is referred to as a return outwards

• This could be because:

  • The goods were damaged
  • The goods were not what the business wanted

• The business will receive a credit note from the supplier

  • The credit note issued is used as the source document

• The book of original entry is the purchases returns day book

How do I record a purchase return in the ledger accounts?

• Debit the trade payable account in the payables ledger

  • This is because the business owes less money to a credit supplier
  • The liability is decreasing

• Credit the returns outwards (purchases returns) account in the nominal ledger

• If the business has already paid all of their invoices in full

  • Then the trade payable account will have a debit balance
  • This means the business is owed money from the supplier
  • This will be balanced when the business receives a cash refund

Worked Example A business returns goods to Halina on 12 January 2024 with a list price of $50. Record this transaction in the ledger accounts for the business.

Answer

Halina Account

Date	Details	$**	Date	Details	$
Final answer: 2024 Final answer: Jan 12	Final answer: Returns outwards	Final answer: 50

Returns Outwards Account

Date	Details	$	Date	Details	**$
			Final answer: 2024 Final answer: Jan 12	Final answer: Halina	Final answer: 50