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A customer can purchase on two grounds: cash or credit. In the case of a cash purchase, the payment is made immediately by the customer however, in the case of a credit purchase, the payment is expected to be made in the future as per the agreement.
Journal entry for purchase of machinery on credit basis
| Machinery a/c | Debit | Debit the increase in asset |
| To Creditor/suppliers a/c | Credit | Credit the increase in liability |
(being machinery purchased on credit)
Journal entry for purchase of machinery for cash
| Machinery a/c | Debit | Debit the increase in asset |
| To Cash | Credit | Credit the decrease in asset |
(being machinery purchased for cash)
Example
1. Mr K purchased machinery from ABC Ltd. amounting to 20,000 on credit. The journal entry in the books of Mr K is as follows:
| Machinery a/c | Debit | 20,000 |
| To ABC Ltd. a/c | Credit | 20,000 |
(being machinery purchased on credit)
2. Mr A purchased machinery from XYZ Ltd. amounting to 20,000 on a cash basis. The journal entry in the books of Mr A is as follows:
| Machinery a/c | Debit | 40,000 |
| To Cash | Credit | 40,000 |
(being machinery purchased for cash)
