Only the cash transactions are recorded in the cash book whereas non-cash transactions are recorded in other special purpose subsidiary book which are as follows :-
3.Purchase. Return Book
4.Sales Return Book
5.Bills Receivable Book
6.Bills Payable Book
It is not necessary for every business to maintain all the above mentioned special purpose subsidiary books but any of the above may be kept depending upon the need of the business.
All credit purchases of goods are recorded in the purchase book. ‘Goods’ here mean only those things in which the firm is dealing. In other words, these are the articles which are purchased for resale.
If, for example, a firm dealing in cloth purchases cloth, it will be treated as purchase of goods and will be recorded in the purchase book.
But if the same firm purchases furniture, it will be treated as purchase of an ‘Asset’ and will not be recorded in purchase book. Purchase book is also known as ‘Invoice Book’ or ‘Purchase Day Book’.
Purchase book is a subsidiary book. The purchase book or purchase day book contains the record of all credit purchase.
Cash book accommodates the records of all goods purchase. A purchase book does not hold the record of purchase of assets.
The journal proper are contains those records. The entries are recorded in the Purchase book from source documents. Invoices or bills received from the suppliers of goods serve as the source documents.
Following transactions are not recorded in the purchase book:-
1.Cash Purchases :- Cash purchases are not recorded in this book since these will be recorded in the cash book.
2.Purchase of Asset :- Only credit purchase of goods are recorded in this book. Purchase of assets, such as Machinery, Furniture, Typewriters etc. are not recorded in the purchase book. Instead these are recorded in the journal proper if purchased on credit or in the cash book if purchased for cash.
Recording of Transactions :- The source documents on the basis of which the transactions are recorded in the purchase book are invoices or bills received by the firm from the suppliers of the goods. An invoice contains the quantity of the goods, rate, amount, trade discount etc.
Trade Discount :- The amount of purchase to be recorded in the purchase book is always arrived at after detecting trade discount.
Format of Purchase Book
|Date||Particulars(Name of the Supplier)(Account to be Credited)||Invoice No.||L.F.||Details||Purchase||Input CGST||Input SGST||Input IGST||Total Amount|
Explanation of the columns of the purchase book :-
1. Date :- The date of purchase of goods on credit is recorded in this column.
2. Particulars :- The name of the person or firms from whom the goods are purchased is written in this column. Also it contains the description of the goods purchased, its quantity, rate, gross amount, trade discount etc.
3. Invoice Number :- The number of the invoice or bill on the basis of which the transaction is being recorded in the purchase book is mentioned in this column.
4. Ledger Folio or L.F. :- Page number of the ledger where the transaction is posted is recorded in this column.
5. Details :- This column is used to write the individuals amount of different items purchased from a particular supplier. This column is also used to deduct the amount of trade discount and for adding the amount of Input CGST, Input SGST and Input IGST.
6. Purchase :- Net amount of purchase i.e., purchase less trade discount is written in this column.
7. Input central GST ( CGST ) :- This tax is paid on inter-state purchase of goods i.e., purchase of goods within the same state. It is charged by the seller from the purchaser on the net sale value i.e., sale price less trade discount. Total of this column is posted to the debit of Input CGST A/C in the ledger.
8. Input State GST ( SGST ) :- This tax is also paid on purchase of goods within the same state. It is also calculated on the net sale value i.e.,sale price less trade discount. Total of this column is posted to the debit of Input SGST A/C in the ledger.
9. Input Integrated GST (IGST) :- This tax is paid on inter-state purchase of goods. i.e.,purchase of goods from outside the state. It is calculated on net sale value i.e., sale price less trade discount. Total of this column is posted to the debit of Input CGST A/C in the ledger.
10. Total Amount :- Total amount of each transaction is shown in this column and the amount of each transaction is posted to the credit of the Supplier A/C in the ledger.
Freight or Cartage Charges
Freight or Cartage charge are incurred on purchase of goods. After the introduction of GST, it will not be appropriate to provide a separate column for freight in the purchase book.
The reason is that GST is levied on purchase of goods at a different. i.e., either of the five rates 0%, 5%, 12%, 18% or 28%, whereas as per GST Act, GST on freight is charged at a fixed rate of 18%.
Advantages of Purchase Book
The following are a list of advantages of purchase book:-
- All the transactions concerning the goods bought on credit find a single place for the purpose of referencing, thus simplifying the process
- Important information regarding purchases does not get lost and are together in one place.
- We don’t need a separate narration or account titles for a purchase day book entry.
- It Facilitates the division of labour among the workers of the organization.
Difference between Purchase Book and Purchase Account
- Purchase book is a part of journal, whereas Purchase Account is the part of ledger.
- There is difference in the format of Purchase Book and Purchase Account. Purchase Book is not divided into debit and credit sides, whereas purchase account is divided into debit and credit sides.
- Purchase book records only credit purchases of goods, whereas credit as well as cash purchases of goods are posted in the purchase account.