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John Hay

What is the journal entry for purchase of machinery?

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1 Answer

  1. This answer was edited.

    A customer can purchase on two basis: cash or credit. In case of a cash purchase, the payment is made immediately by the customer however, in 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/cDebitDebit  the increase in asset
    To Creditor/suppliers a/cCreditCredit the increase in liability

    (being machinery purchased on credit)

    Journal entry for purchase of machinery for cash:

    Machinery a/cDebitDebit  the increase in asset
    To CashCreditCredit 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/cDebit20,000
    To ABC Ltd. a/cCredit20,000

    (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/cDebit40,000
    To CashCredit40,000

    (being machinery purchased for cash)

    Hope this helps.

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