The Purchase Day Book, also known as the Bought Day Book or Purchases Journal, is a crucial accounting record used to document all credit purchases of goods and services. It serves as a book of prime entry where invoice amounts for purchases are entered before posting them to the relevant ledgers. The primary purpose of the purchase day book is to collect all purchase invoices and categorize them for streamlined financial processing.
Detailed Definition
The Purchase Day Book is a specialized accounting record used to log the details of credit purchases. Each entry in the purchase day book includes:
- Date of purchase: When the purchase was made.
- Invoice number: The unique identifier of the purchase invoice.
- Supplier name: The entity from whom the goods or services were purchased.
- Description of goods or services: What was purchased.
- Amount: The total cost of the purchase, including any taxes.
Once recorded in the purchase day book, these details are posted to the supplier’s ledger account and the general ledger, ensuring that the business’s financial records reflect all transactions accurately.
Examples
Example 1
Company A purchases office supplies worth $500 on credit from Supplier X on January 5th. The transaction would be entered in the Purchase Day Book as follows:
- Date: January 5th
- Invoice Number: INV1234
- Supplier Name: Supplier X
- Description: Office supplies
- Amount: $500
Example 2
Company B receives an invoice for $1,000 for raw materials from Supplier Y on February 12th. The entry in the Purchase Day Book would be:
- Date: February 12th
- Invoice Number: INV5678
- Supplier Name: Supplier Y
- Description: Raw materials
- Amount: $1,000
Frequently Asked Questions
What is the purpose of a Purchase Day Book?
The primary purpose is to record all credit purchase transactions in a detailed manner before posting them to the general ledger and individual supplier accounts.
Is the Purchase Day Book the same as an invoice register?
No, the Purchase Day Book is specifically for credit purchases and includes detailed transaction information, whereas an invoice register might hold various types of invoices, including sales, purchases, and others.
How often should entries be posted from the Purchase Day Book to the ledger?
Entries should ideally be posted regularly, either daily, weekly, or monthly, to ensure that financial records are up to date.
Can the Purchase Day Book be used for cash purchases?
No, cash purchases are typically recorded in the Cash Book, not the Purchase Day Book, which is exclusively for credit transactions.
Is it possible to automate the Purchase Day Book?
Yes, accounting software can automate the Purchase Day Book entries, making the process more efficient and reducing errors.
Related Terms
Sales Day Book
A record of all credit sales transactions, similar to the Purchase Day Book but for recording transactions on the revenue side.
General Ledger
A complete record of all financial transactions over the life of a company, incorporating various subsidiary ledgers, including the Purchase Day Book.
Supplier Ledger
A subsidiary ledger that details all transactions with individual suppliers, showing amounts owed and purchases made.
Invoice
A document sent by a seller to a buyer indicating the products, quantities, and agreed prices for goods or services the seller has provided.
Online References
- Investopedia - Journals in Accounting
- AccountingTools - Purchase Journal
- Corporate Finance Institute - Subledgers and the General Ledger
Suggested Books for Further Study
- Accounting Made Simple by Mike Piper
- This book offers a straightforward introduction to accounting principles, including the Purchase Day Book.
- Intermediate Accounting by Donald E. Kieso, Jerry J. Weygandt, and Terry D. Warfield
- A comprehensive guide that dives into more complex accounting topics with detailed explanations.
- Financial Accounting by Carl S. Warren, James M. Reeve, and Jonathan Duchac
- This book covers a wide range of accounting topics, including the various journals used in accounting.
Accounting Basics: Purchase Day Book Fundamentals Quiz
Thank you for exploring the nuances of the Purchase Day Book and testing your understanding through our detailed quizzes. Keep pushing towards excellence in your accounting knowledge!
