Journal Entry for Credit Purchase and Cash Purchase
To run successful operations a business needs to purchase raw material and manage its stock optimally throughout its operational cycle. Accounting and journal entry for credit purchase includes 2 accounts, Creditor and Purchase. In case of a journal entry for cash purchase, ‘Cash’ account and ‘Purchase‘ account are used.
The person to whom the money is owed is called a “Creditor” and the amount owed is a current liability for the company. Purchase orders are commonly used in large corporations to order goods on credit.
Accounting and Journal Entry for Credit Purchase
In case of a credit purchase, “Purchase account” is debited, whereas, the “Creditor’s account” is credited with the equal amount.
| Purchase Account | Debit |
| To Creditor’s Account | Credit |
Journal entry for credit purchase
Golden rules of accounting applied (UK Style)
- Purchase A/C (Type – Nominal) > Rule – Dr. all Expenses and Losses
- Creditor’s A/C (Type – Personal) > Rule – Cr. the Giver
Modern rules of accounting applied (US-Style)
- Purchase A/C (Type – Expense) > Rule – Dr. the Increase in Expenses
- Creditor’s A/C (Type – Liability) > Rule – Cr. the Increase in Liability
Example – Journal Entry for Credit Purchase
Post a journal entry for – Goods purchased for 5,000 on credit from Mr Unreal
Related Topic – Journal Entry for Credit Sales and Cash Sales
Accounting and Journal Entry for Cash Purchase
Cash Purchase, on the other hand, is simple and easy to account for. In case of cash Purchase, the “Purchase account” is debited, whereas “Cash account” is credited with the equal amount.
| Purchase Account | Debit |
| To Cash Account | Credit |
Journal entry for cash purchase
Golden Rules applied (UK Style)
- Purchase A/C (Type – Nominal) > Rule – Dr. all Expenses and Losses
- Cash’s A/C (Type – Real) > Rule – Cr. What Goes out
Modern Rules applied (US-Style)
- Purchase A/C (Type – Expense) > Rule – Dr. the Increase in Expenses
- Cash A/C (Type – Asset) > Rule – Cr. the Decrease in Asset
Example – Journal Entry for Cash Purchase
Post a journal entry for – Goods purchased for 5,000 in cash from Mr Unreal
Short Quiz for Self-Evaluation
>Read Cash Discount