written by khatabook | December 1, 2022

Purchase Book in Accounting Explained | Format, Advantages

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Table of Content


A purchase book is a type of accounting record that is used to track the purchase of inventory by a business. The purchase book includes information such as the date of purchase, the supplier, and the quantity and cost of the inventory purchased. The purchase book is used to track inventory levels and to calculate the cost of goods sold (COGS). A purchase book is an important tool for businesses to manage their inventory and to ensure that they are not overspending on inventory.

Did You Know? The purchase book is one of the eight types of subsidiary books used to record transactions relating to credit purchases of the products.

What is a Purchase Book?

A purchase book is a book of original entries in which all credit purchases are recorded. The purchase book records credit purchases of inventory and other items. The purchase book is similar to the sales book, but instead of recording sales, it records purchases. 

The purchase book is an important book of entry because it tracks credit purchases. When inventory is purchased on credit, the terms of the purchase are important to track. The purchase book allows businesses to keep track of their inventory costs and the terms of their credit purchases.

Importance of Purchase Book In Accounting

  • The purchase book is a record of all purchases made by a business. It is used to track the cost of goods purchased and the supplier of those goods.
  • The purchase book helps businesses keep track of their spending and ensures that they are not overspending on inventory. It also helps businesses negotiate better prices with suppliers.
  • The purchase book can be used to track spending trends and identify areas where cost savings can be made.
  • A purchase book is important for managing cash flow and ensuring that bills are paid on time.
  • The purchase book is an important part of accounting and financial management. It is used to track the cost of goods purchased and the supplier of those goods.
  • The purchase book generates reports that can be used to monitor spending, assess supplier performance, and make strategic purchasing decisions.

Also Read: Costing: Definition, Objectives, and Advantages

Purchase Book Format

The purchase book format is a method of keeping track of inventory purchases. This format is used to track inventory items that are purchased regularly.

The purchase book format consists of three columns: the first column is the date of the purchase, the second column is the item's name, and the third column is the quantity of the item. The purchase book format is used to track inventory items that are purchased regularly. 

It is a great way to keep track of your inventory and ensure you are always stocked up on the items you need. This format is especially helpful if you purchase items in bulk. By keeping track of your purchase date, you will be able to track when you need to restock. This format is also helpful if you have many items in your inventory. By keeping track of the name and quantity of each item, you can easily see which items you need to order more.

Given below is the format of the Purchase Book:

Date

Particulars

Purchase Invoice

L.F.

Details

Total(Currency)






 
         

What Is A Purchase Return Book?

Purchase return books can be considered as subsidiary books where the return for goods purchased are recorded. It is used to track inventory purchases. When inventory is purchased on credit, the purchase is recorded in the purchase book. The purchase book also tracks other credit purchases, such as office supplies or equipment. 

Also Read: Accounting Period - Definition, Types & How Does an Accounting Period Work?

Advantages of Purchase Return Book

There are many advantages of purchase return books, a few of them are mentioned below:

1. Helps To Keep Track Inventory

Purchase return books help businesses keep track of their inventory levels, as they provide a record of all items that have been returned. This can help ensure that stock levels are maintained, and can help to avoid over-ordering or under-ordering of products.

2. Record Purchases

The process assists in recording the sale made by the customer. For example, when a T-shirt printing company buys bulk shirts on credit, they do not pay for them in full up-front. Instead, they will pay in installments. 

3. Futuristic vision

When the entity compares the ratio to those from previous periods, it provides a sense of what is improvement and what needs to be improved. A trend analysis gives an indication of the firm’s future direction as well as the opportunities and problems that it will face. 

Also Read: What is an Accounting Transaction? Example & Types of Accounting Transaction

Conclusion

In conclusion, the purchase book in accounting is an important tool that can help businesses keep track of their spending and ensure that they make the most efficient use of their resources. By keeping track of purchases made, businesses can identify areas where they may be able to save money or make better use of their funds. Additionally, the purchase book can help businesses keep track of their inventory levels and ensure that they are not overstocking their shelves.

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FAQs

Q: What is a purchase book with an example?

Ans:

A company creates a purchase book to record credit purchases of items. Purchases of products for cash and purchases of non-goods are not documented in the purchase book. Cash purchases are documented in the Cash Book, while all other transactions are recorded in the Journals and corresponding Ledgers.

Q: What do you mean by ledger?

Ans:

A ledger is a book or other collection of financial accounts. The term is most often used to refer to the book that records all business transactions. This book is sometimes called the "general ledger" or the "accounts ledger." The ledger contains a record of every financial transaction that the business has made. This includes sales, purchases, payments, and receipts.

Q: What exactly is purchase in accounting?

Ans:

A purchase is the acquisition of products or services in exchange for payment. Payment is normally made in cash or by credit card (to be paid later). A purchase may also be part of a barter deal in which various non-cash assets are swapped, or it may be made in exchange for the acceptance of responsibility.

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Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.