Introduction to Purchase Book and Purchase Return Book
The book of original entry is called a subsidiary book or a daybook. A subsidiary book is used to record transactions of a similar nature. There are six kinds of subsidiary books maintained by most organizations; Cashbook, Purchase book, Purchase Returns book, Sales book, Sales return book, and Journal proper. In case an organization does not maintain subsidiary books, it maintains Journal for all the transactions. A Journal is a record of all entries irrespective of their nature and does not bifurcate the entries according to their nature.
Let’s understand the Purchase book and Purchase Return Book in detail.
Purchase Book
A purchase book or a purchase day book is a subsidiary book. It contains the record of all credit purchases made. The cash goods purchases are recorded in the cash book. A Purchase book holds the record for the purchase of goods only and not purchases of assets. Asset purchase entries are recorded in the Journal proper.
The entries recorded in the Purchase book are done based on source documents like invoices or bills received from the suppliers of goods. The entries in the purchase book are done for the net amount of the invoice and do not include trade discounts and other details on the invoice.
The total of the Purchase book is entered monthly on the Debit side of the Purchases A/c but the individual accounts of the suppliers may be entered daily. When the volume of transactions in an organization is large, the entries for the purchase a/c in the ledger may be posted weekly or fortnightly.
Performa of the Purchase Book
Purchase Return Book
When the goods purchased on credit are returned to the supplier, the entries for such transactions are recorded in the Purchase return book or the purchase returns day book. Goods purchased are sometimes returned by the buyer on account of a defect or low quality. A separate subsidiary book is maintained for these purchase returns since these returns are not deducted from the purchases in the Purchase book. The entry for a purchase return transaction is done for the net amount on the invoice.
A debit note in duplicate is prepared for every return of goods. The original one is sent to the supplier while the duplicate copy is kept by the organization for its records. The Debit note includes the date, serial number, name of the supplier, details of goods returned, and the reason for the return of the goods.
The supplier can also prepare a Credit note and send it to the customer when the goods are received from the customer.
Performa of the Purchase Return Book
Solved Example
Q. Record the following transactions in the books of M/s. X and Co. and in the Purchase Account
Solution:
In the books of M/s. X and Co.
Purchase Book
FAQs on Purchase Book vs. Purchase Return Book
1. What is a Purchase Book and what is its main purpose in accounting?
A Purchase Book is a special type of subsidiary book, also known as a daybook, used in accounting. Its primary purpose is to record all credit purchases of goods that a business buys for the purpose of resale. It helps in keeping a separate and chronological record of all credit purchases, making it easier to manage accounts payable.
2. What is a Purchase Return Book and when is it used?
A Purchase Return Book, also called a Returns Outward Book, is used to record goods that are returned to the supplier. These are goods that were originally purchased on credit. A business might use this book when goods are found to be defective, of the wrong specification, or damaged. For every entry, a Debit Note is prepared and sent to the supplier.
3. What is the key difference between a Purchase Book and a Purchase Return Book?
The key difference lies in the direction and nature of the transaction recorded:
- A Purchase Book records the inflow of goods bought on credit.
- A Purchase Return Book records the outflow of goods that are returned to the suppliers.
Essentially, one tracks what you buy on credit, and the other tracks what you send back from those credit purchases.
4. How is a Purchase Book different from a Purchase Account?
A Purchase Book is different from a Purchase Account in their function and placement within the accounting cycle. A Purchase Book is a subsidiary book (part of the Journal) where transactions are first recorded. In contrast, a Purchase Account is a ledger account that summarises all purchases (both cash and credit) for an accounting period. The total from the Purchase Book is periodically posted to the debit side of the Purchase Account.
5. What kind of business transactions are not recorded in a Purchase Book?
Not all purchases are recorded in the Purchase Book. The two main types of transactions excluded are:
- Cash Purchases: Any goods bought for cash are recorded in the Cash Book, not the Purchase Book.
- Purchase of Assets: The purchase of assets like machinery, furniture, or vehicles on credit is recorded in the Journal Proper, not the Purchase Book, because these are not goods for resale.
6. What are the typical columns in the format of a Purchase Book?
The standard format of a Purchase Book helps in recording transactions systematically. The typical columns include:
- Date: The date of the purchase.
- Particulars: Name of the supplier from whom goods were purchased.
- Invoice No.: The bill number from the supplier.
- Ledger Folio (L.F.): The page number of the supplier's account in the ledger.
- Details: Item-wise details and trade discounts, if any.
- Amount: The final net amount payable for the transaction.
7. Why do businesses need a separate Purchase Return Book instead of just reducing the amount in the Purchase Book?
Using a separate Purchase Return Book provides better control and clarity. If entries were simply adjusted in the Purchase Book, it would become cluttered and difficult to track how many goods were returned and why. A separate book offers a clean, chronological record of all returns, helps in analysing the quality of goods from different suppliers, and supports the issuance of Debit Notes for proper accounting adjustments.
8. How does the purpose of a Purchase Book differ from that of a Sales Book?
Both are subsidiary books, but they track opposite transactions. The Purchase Book is exclusively for recording the credit purchase of goods intended for resale. On the other hand, the Sales Book is used exclusively for recording the credit sale of goods to customers. One tracks money the business owes (accounts payable), while the other tracks money owed to the business (accounts receivable).
