What is the Journal Entry for Credit Purchase and Cash Purchase?


Journal Entry for Credit Purchase and Cash Purchase

To run a successful venture 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.

Journal Entry for Credit Purchase
Purchase Account Debit
 To Creditor’s Account Credit

 

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.

Example - Journal Entry for Credit Purchase

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.

Journal Entry for Cash Purchase
Purchase Account Debit
 To Cash Account Credit

 

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.

Example - Journal Entry for Cash Purchase

 



 

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