Examining Accounts: Accounting Systems: Example of a Simple Purchases System
When goods are delivered by a supplier they are normally accompanied by a delivery note. The delivery note describes the nature of the goods delivered and the respective quantities. The other important feature is the delivery date. The delivery note is checked by an employee of the customer against the goods. Signature will be evidence of delivery and date of delivery. The delivery note may not show the price. It is normal to attach the delivery note to the subsequent invoice for control purposes but occasionally it is filed separately. In view of its importance it is not usually destroyed.
When the invoice is received it is checked with the delivery note (sometimes called an ‘advice note’) and then entered in the purchase day book.
The purchase day book information would be
- invoice date
- suppliers name
- purchase ledger account number
- suppliers invoice number
- own invoice number (in sequence)
- goods value of invoice (£)
- VAT value of invoice (£)
- gross invoice value (£).
The details entered in the purchases ledger account gross are (credit side of the ledger account)
- invoice date
- invoice number
- gross invoice value.
From time to time, say monthly, the purchase day book is totalled and the totals transferred to the nominal ledger as follows
Debit side of purchases account - goods value for month
Debit side of VAT account - VAT value for month.
Any credit notes received from suppliers during the month will be entered in the purchase day book in the same detail as purchase invoices. Like the sales credit notes the purchases credit notes may be entered in a separate part of the purchase day book or even in a separate book. If in a separate section or book the totals would be posted as follows.
- The individual credit notes on the debit side of the supplier purchases ledger account.
- The monthly totals:
Credit side of purchases account - goods value of credit notes for month
Credit side of VAT account - VAT value of credit notes for month.
When the invoice is paid the payment is entered on the credit side of the cash book and then posted to the debit side of the suppliers account in the purchases ledger balancing the value of the purchase invoice posted.
Purchase ledger control account format
|4) Total paid to suppliers (see Note 2 below)||X||1) Balance b/f (see Note 1 below)||X|
|5) Total discount received (per cash book)||X||2) Total purchases for year (from purchase day book)||X|
|6) Total credit notes (from day book or returns book)||X||3) Difference w/o to purchases (see Note 4 below)||X|
|7) Balance c/f (see Note 3 below)||X|
- Balances brought forward should agree with previous year’s balance sheet figure for trade creditors. This figure includes VAT. Accrued charges will not be included - this possibility should be considered if there is any difference.
- Payments to suppliers should agree with cash and bank account figures.
- List of purchases ledger balances should agree with this figure when totalled.
- Any difference written off this side may suggest more payments have been made than were recorded in purchases. This could mean that unrecorded personal expenditure has been written off as a difference to purchases. Another possibility is that closing creditors were overstated (perhaps due to the inclusion of a reserve).