Difference Between Purchase Book and Purchase Account

In a business, purchases are made to maintain inventory so that products can be produced and sold to clients. When purchases are made, they are initially noted in the purchase day book, which includes information about the product purchased as well as the supplier's name.

Subsequently, the monthly total is moved from the Purchases Book to the Purchases account. Let's discuss the difference between these two terms.

Purchase Book

Businesses create purchase books to document credit purchases of items. Purchases made with cash and purchases of items other than products are not noted in the purchase book. Purchases of cash are noted in the cash book, while other transactions are noted in the relevant Ledgers and Journals. The supplier's invoice, which shows the net amount after the trade discount, is useful for entering credit purchases into the purchase book.

The purchase book is prepared as it becomes simpler and allows us to periodically see the whole credit amount for purchases of items. It is beneficial to understand and verify the cost of the goods. Additionally, it minimizes the workload associated with passing journal entries for every credit purchase of products. At the end of the designated time frame (week, month, or year), the purchase book is totaled and posted to the purchase account.

Format of Purchase Book

1. Date: The first column includes the transaction's date.
2. Particulars: This column contains the names of the products, the provider, and the amounts of the products purchased.
3. Invoice Number: The bought goods' invoice number is noted.
4. L. F.:"L.F." stands for ledger folio. This column lists the page number of the ledger book where this transaction was entered.
5. Details: The amount for each article is written. Any trade discounts received are subtracted from the total cost.
6. Amount Column: This column contains the net amount that must be paid to the supplier for the products that were purchased from them.

Advantages of Purchase Book

1. For entities with a higher credit purchasing volume, it is helpful.
2. Minimizes the overall effort required to pass the journal entry.
3. Because every credit purchase entry is kept in a single book, ledger posting is made simple.
4. It is not necessary to debit the purchasing account for every credit purchase. Rather, the daily book purchase total is charged periodically.
5. The necessary data about credit purchases is available.
6. At the time of posting, any mistakes made when entering the purchases can be found.

Purchase Account

A general ledger account called the purchase account tracks a company's inventory. Thus, the owner can find all the information they need about purchasing products in one location.

• The purchase account has two sides (debit and credit) much like all other ledger accounts.
• It just keeps track of how much stock was bought during a specific time frame.
• It is kept up to date using General Ledger.
• The debit balance that is transferred to the trading account's debit side at the end of each period is always shown in the purchases account.

Format of Purchase Account

1. Date Column: This column contains the date of the transaction rather than the date of the journal-to-ledger posting.
2. Particulars Column: Depending on the context of a transaction, we will either credit or debit the relevant account in this column. Narration can also be included to provide a brief description of the transaction.
3. Journal Folio Column:This column provides the journal page reference where the transaction is initially entered and subsequently posted to the relevant ledger account.
4. Amount Column:The transactional amount is entered in this column.

Difference Between Purchase Book and Purchase Account

Conclusion

The purchase book and purchase account are crucial accounting instruments for companies, especially when it comes to monitoring the purchase of goods and services. The purchase book acts as a thorough log of credit transactions, recording transaction details such as dates, suppliers, invoice numbers, and sums. It offers a well-organized summary of credit purchases and expedites the recording. This is not the case with the purchase account, which serves as a sort of summary ledger for all purchases completed within a given time frame using credit or cash. It offers a thorough overview of all the shares the company has purchased throughout time.

Although the purchase book documents credit transactions directly, the purchase account records all purchase-related transactions, including cash and credit purchases. As such, it is the main source of information for comprehending an organization's inventory acquisitions. This supports decision-making processes related to inventory management and financial planning, transparency, and the upkeep of correct financial records.

FAQ's

Question 1. What is a Purchase Book utilized for?

Answer: This book is utilized to track and document every purchase an organization makes for products and services.

Question 2. What details are usually included in a purchase book?

Answer: Information like the date of purchase, supplier name, invoice/receipt number, item description, quantity, unit price, and total amount are all included in a purchase book.

Question 3. Does a business need to use the Purchase Book?

Answer: Keeping a Purchase book is necessary for precise and transparent financial record-keeping, even though it's not usually mandated by law.