![]() With this method, a debit to one account is followed by a credit to another account. The double-entry accounting method is used to record purchases made by a company. In order to accurately make such journal entries, the supplies or inventory account are often used to record the purchase of supplies or inventory respectively. For either of these purchases, a debit and credit journal entry has to be made in order to record the transaction. When companies purchase supplies or inventory, they either pay in cash or make the purchase on credit. Is purchase a debit or credit? Debit and credit journal entries for purchase Let us have a brief look at each of these ways through which companies make purchases and the varying journal entries for the purchase of supplies and inventory. Supplies and inventory have to be properly accounted for because the company usually pays sales tax for supplies while inventory is taxed when they are sold to the customer.Īs mentioned earlier, purchases can be either in cash or on credit. These include the raw materials and components, repair and operating supplies, finished goods and maintenance, and work in progress. Inventory comprises items that companies produce or purchase to sell to customers. They usually have a finite life span due to their use. Supplies aid the company’s employees to perform their tasks more efficiently. Supplies are items companies use for their day-to-day operations such as highlighters, paper, pens, trash cans, etc. When assets such as land, building, machinery, plant, and other assets are purchased, they are recorded on the balance sheet as fixed assets.Īlthough both the purchase of supplies and inventory result in the reduction of the company’s assets, accounting for them is not the same. When goods or inventory is purchased, it is recorded on the company’s income statement as part of the cost of goods sold or supplies expense. In accounting, the purchase is the cost of acquiring inventory with the aim of reselling them or purchasing assets that ease business operations. For retail companies, their purchases involve buying finished goods from manufacturers which they later resale. Hence for manufacturing companies, their purchases involve buying raw materials that will be used in the production of goods. Purchases are a big part of the manufacturing process as raw materials that are processed into finished goods must be purchased. ![]() Purchases could also be a barter transaction where the parties involved exchange a good for a service or vice-versa. Read about: Accumulated depreciation is what type of account? Understanding purchaseĪ purchase is the acquisition of goods or services in exchange for cash or credit payment.
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