Business and Personal Finance: Set Up Your Purchases Journal

The Inventory-Cost Connection: Set Up Your Purchases Journal

To make recording inventory purchases as painless as possible, use a special purchases journal to write up these entries. Like the other special journals, the purchases journal is set up so that you don’t have to keep writing the same account names over and over again; instead, you can just write a number in a prelabeled column. A classic purchases journal contains at least a column for inventory purchases (debits), accounts payable (credit), and a miscellaneous catchall for any other accounts occasionally involved in these transactions. If you find that most of your purchase transactions include other accounts rather frequently, you can set up dedicated columns for those accounts as well. Some common examples include shipping and purchase discounts.

The majority of inventory purchases are made using credit. That’s because these purchases are usually regular and sizable, even for small businesses, and also because these are virtually always business- to-business transactions. The companies you buy your inventory from are called your vendors. As you write up your purchases in the journal, make sure to include the name and account number of the particular vendor (your account number for the vendor, rather than the other way around).

When you get to the bottom of a journal page, total each column. Then add the total of your debit columns, followed by your credit columns. The total debits must equal the total credits for your journal to be in balance.

When you post from your purchases journal to the ledgers, you can post totals for all the dedicated columns to their corresponding general ledger accounts; items entered in a miscellaneous column must be posted individually to the appropriate general ledger account. In addition, individual transaction information must be posted to each applicable vendor account in the accounts payable subledger (also called the vendor ledger).

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Purchases journals traditionally are used only to record purchases of inventory that you expect to resell. If your purchase volume is fairly low and doesn’t really merit its own journal, you can use a combination purchases and cash payments journal. Just make sure to use a dedicated column for your inventory purchases.