When purchases are made, they are first entered into the purchase day book, which contains information on the goods purchased as well as the supplier's name. After that, the sum is moved from the Purchases Book to the Purchases account each month. The purchase book refers to the primary book where all the credit transactions related to the goods purchased are recorded. The purchase account refers to the ledger account where all the business's credit and cash transactions are recorded. In this article, we will discuss the difference between a purchase book and a purchase account.
What is a Purchase Book?
The Purchase Book is a type of original entry book that keeps track of all the credit purchases made by the business. While recording the transactions related to the purchase book, it must ensure that the credit purchases are for the items in which the company is dealing. Purchase books are also referred to as purchase journals. The purchase book recording is made based on purchase invoices, which are received by the business from their supplier. The purchase book contains the net amount, which is derived after deducting any trade discount.
What is a Purchase Account?
A Purchase Account is a type of ledger account used in accounting to record all transactions related to the purchase of goods systematically. This account includes purchases made both on credit and in cash. By maintaining a Purchase Account, a business ensures that all expenditures related to the acquisition of goods are documented in one centralized place. This comprehensive record-keeping allows the business owner or accountant to have a clear and consolidated view of all purchase activities, aiding in financial analysis, budgeting, and reporting.
Difference Between Purchase Book and Purchase Account:
Basis | Purchase Book | Purchase Account |
|---|---|---|
Meaning | A purchase book can be referred to as a special-purpose journal book that is maintained to keep track of systematic records for all the goods bought on credit | A purchase account is a ledger where the balance of the purchase book is transferred at intervals. |
What is it? | A purchase book is referred to as a type of subsidiary book. | A purchase account is a ledger account that has a debit balance. |
What it records? | The purchase book is used to record only credit purchases incurred by the business. | The purchase account records both credit and cash purchases for the business. |
Transfer | The total number of purchases is recorded in the ledger at regular intervals.. | The amount highlighted in the purchase account is transferred to the trading account of the business |
Debit and credit side | The purchase book has no debit or credit side. | The purchase account contains debit and credit sides where transactions are recorded. |
System of Recording | A chronological recording is followed while recording transactions in the purchase book. | The purchase account comprises the periodic total balance of the purchase book. |
Basis of Entry | The source for the entry is the invoice or the bill for the purchase. | The source for the purchase account is the cash book and the purchase book. |
Conclusion:
The purchase book provides a detailed record of all credit purchases, while the purchase account summarizes the total cost of those purchases (and any cash purchases) for a specific period. The information gathered from the purchase account is crucial for calculating the cost of goods sold and, ultimately, helps in calculating the profits of the business.