10.
1 Purchases Journal
Businesses purchase goods with the objective of reselling. These goods are pur-
chased either on cash basis or on credit basis. Goods purchased on credit basis are
recorded in a separate record named as the Purchases Journal. This is also known
as the Purchases Day Book.
The purchases of trade goods on credit basis are initially recorded in the Purchase Journal.
Example :-
If a business buys and resells stationeries ,the purchase of stationeries
on the credit basis is recorded in the Purchases Journal.
If a business buys and resells automobiles, the purchase of auto
mobiles on credit basis is recorded in the Purchase Journal.
When purchasing goods on credit basis, the parties providing goods are known
as suppliers or trade creditors. The amount payable to creditors are liabilities of
a business. Suppliers, when providing goods on credit, prepare and send a source
document including information about supply. This source document is the ‘invoice’.
In the perspective of the purchasing business, it is the purchase invoice. The
information in the purchase invoice is required to be recorded in the Purchases
Journal at first. Thereafter, those transactions are posted into the ledger later.
Study the format of the invoice given below.
Invoice No. 120
DESHAN BOOKSHOP
MAIN STREET
DEHIWELA
The Manager T.P - 011- 2895942
Rashmi Book Shop
Maharagama
With reference to your order No. A/485 dated 01.02.20xx
Unit Price -
Serial No. Description Quantity Value - Rs.
Rs.
Drawing books 40 100 4 000
CR books 200 130 26 000
Exercise books 120 60 7 200
37 200
Less - 10% Trade discount 3 720
33 480
(All cheques should be written in favour of Deshan book shop and crossed)
Condition : 5/30 net 60
Nirmal perera
........................................
Manager
Figure 10.1
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The condition ‘5/30 net 60’ indicates that the purchaser should settle the credit
within 60 days and if he/she settles within 30 days, a 5% cash discount will be
given.
The trade discount is the reduction in the listed price of a good at the time of
purchasing on credit. This trade discount is deducted in the invoice and not
recorded in accounts. After deducting the trade discount the net purchase value of
an invoice will be recorded in the Purchase Journal.
Study the format of a Purchase Journal given below.
Purchases Journal
Invoice Total value Ledger
Date Supplier
No. Rs. Page
Example :-
The following information is of Lihini’s business which buys
stationeries for reselling.
01.03.20xx The net value of the Invoice No.115, under which goods are
bought from Namal is Rs. 22 000.
10.03.20xx The net value of the Invoice No.65, under which goods are
bought from Sahan is Rs. 28 000.
20.03.20xx The net value of the Invoice No.43, under which goods are
bought from Purnima is Rs. 26 000.
25.03.20xx The net value of the Invoice No.48, under which goods are
bought from Purnima is Rs. 12 000.
The Purchases Journal will be prepared as follows.
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Purchases Journal
Invoice Ledger
Date Supplier Total Value Rs.
No. page
01.03.20xx 115 Namal 22 000
10.03.20xx 65 Sahan 28 000
20.03.20xx 43 Purnima 26 000
25.03.20xx 48 Purnima 12 000
31.03.20xx Debited to the Purchases account 88 000
Posting of transactions recorded in the Purchases Journal to the Ledger.
The total in the Purchases Journal will be debited to Purchases Account. Thereafter,
each value will be credited separately to the respective account of the creditor.
The total in the Purchases Journal will be debited to the purchase account. Creditors
accounts are liability accounts. Therefore, an increase in the liability is recorded in
the credit side of creditors account.
Accordingly, the values recorded in the Purchase Journal will be posted to the led-
ger as follows.
Dr. Purchases Account Cr.
Value Value
Date Description L.F. Date Description L.F.
Rs. Rs.
31.03.20xx Creditors 88 000
Dr. Namal's account Cr.
Value Value
Date Description L.F. Date Description L.F.
Rs. Rs.
01.03.20xx Purchases 22 000
Dr. Sahan's account Cr.
Value Value
Date Description L.F. Date Description L.F.
Rs. Rs.
10.03.20xx Purchases 28 000
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Dr. Purnima's account Cr.
Value
Date Description L.F. Date Description L.F. Value Rs.
Rs.
20.03.20xx Purchase 26 000
25.03
Purchase 12 000
Activity 01
Prepare the Purchases Journal with the information given below of Indika’s Busi-
ness and post them into the ledger.
Net value mentioned
Date Invoice No. Supplier
in the invoice Rs.
06.05.20xx 82 Amaranayaka 15 000
12.05 45 Wijenayaka 18 000
20.05 36 Karunaratna 34 000
26.05 73 Hewavasam 9 000
28.05 94 Abeynayaka 20 000
Activity 02
Prepare the Purchases Journal for the month of May 20xx of Sewwandi's Business
using the information given below and post them into the ledger.
Invoice
Date Supplier Other details
No.
20 packets of photocopy papers at
06.05.20xx 65 Piyal
Rs. 200 each (10% trade discount)
30 packets of photocopy papers at
12.05.20xx 38 Sunil
Rs. 250 each (5% trade discount)
15.05.20xx 43 Ranil 30 calculators at Rs. 400 each
20 packets of half sheet at Rs. 240 each
20.05.20xx 168 Piyal
(10% trade discount)
28.05.20xx 140 Sunil 20 calculators at Rs. 400 each
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10.2 Sales Journal
When a business sells trading goods on credit, such transactions are first recorded
in the Sales Journal.
When selling trading goods on credit, an invoice is issued to debtors. This document
is known as the sales invoice. The business retains a copy of the sales invoice. This
sales invoice is the source document for recording transactions in the Sales Journal.
The price mentioned in the invoice may also be reduced by a certain percentage
when selling on a credit basis. This reduction is the trade discount. The net value
after deducting this trade discount is recorded in the Sales Journal.
The transactions recorded in the Sales Journal are posted into the ledger periodically.
Example :-
The following invoices with net values are issued by
Amarasinghe’s Business which buys and sells consumer goods.
Date Invoice No. Buyer Value Rs.
02.05.20xx 35 Rathna 5 000
08.05 36 Kumara 12 000
10.05 37 Rathna 8 000
21.05 38 Mahanama 13 000
23.05 39 Indika 17 000
25.05 40 Mahanama 6 000
28.05 41 Indika 7 000
The sales Journal for the month ended at 31.05.20xx can be prepared and posted
to the ledger as follows.
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Sales Journal
Invoice Ledger
Date Buyer Total Value Rs.
No. page
02.05.20xx 35 Rathna 5 000
08.05 36 Kumara 12 000
10.05 37 Rathna 8 000
21.05 38 Mahanama 13 000
23.05 39 Indika 17 000
25.05 40 Mahanama 6 000
28.05 41 Indika 7 000
31.05 Credited to the sales account 68 000
Dr. Sales account Cr.
Value Value
Date Description L.F. Date Description L.F.
Rs. Rs.
31.05.20xx Debtors 68 000
Dr. Rathna's account Cr.
Value Value
Date Description L.F. Date Description L.F.
Rs. Rs.
02.05.20xx Sales 5 000
10.05 Sales 8 000
Dr. Kumara's account Cr.
Value Value
Date Description L.F. Date Description L.F.
Rs. Rs.
08.05.20xx Sales 12 000
Dr. Mahanama's account Cr.
Value Value
Date Description L.F. Date Description L.F.
Rs. Rs.
21.05.20xx Sales 13 000
25.05 Sales 6 000
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Dr. Indika's account Cr.
Value
Date Description L.F. Date Description L.F. Value Rs.
Rs.
23.05.20xx Sales 17 000
28.05 Sales 7 000
Activity 03
The following is the file of source documents of Nirmalee’s Business.
Nirmalee Traders
Maharagama.
Gayashan Centre No. 1820
Nugegoda. Date - 02.03.20xx
Invoice
Unit
Serial No. Description of goods Quantity Price Value Rs.
Rs.
01 Television sets 10 15 000 150 000
02 Computers 10 30 000 300 000
450 000
Less - 10% trade discount (45 000)
405 000
If payment is made before the 30.04.20xx
a 4% discount would be allowed.
Sudesh Karunatilaka
...............................................
Sales Manager
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Nirmalee Traders
Maharagama.
Nilooshan Centre, No. 1821
Dehiwela. Date - 16.03.20xx
Invoice
Unit
Serial No. Description of goods Quantity Price Value Rs.
Rs.
01 Cassette Recorder 20 3 000 60 000
02 Radio 30 2 000 60 000
120 000
Less - 5% Trade discount (6 000)
114 000
If the payment is made before the 30.04.20xx
a 4% discount would be allowed. Sudesh Karunatilaka
.....................................
Sales Manager
Nirmalee Traders
Maharagama.
Dilshan Centre, No. 1822
Dilkwella. Date - 18.03.20xx
Invoice
Unit
Serial No. Description of goods Quantity Price Value Rs.
Rs.
01 Photocopy Machines 08 50 000 400 000
02 Television sets 10 20 000 200 000
600 000
If the payment is made before the 30.04.20xx
a 4% discount would be allowed.
Sudesh Karunatilaka
.....................................
Sales Manager
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Required :-
10.3 General
01. Prepare theJournal
Sales Journal using the following format.
The earlier chapters and above sections discussed how to record day-to-day
Invoice transac-
Ledger
Date
tions of a business Customer Total Value
[Link] the Cash Book, Petty Cash Book, Purchase Journal and
pageSales
Journal. These journals are used to record only one type of transaction. Hence,
they are known as specialized journals.
Example :-
Sales Journal is used to record only credit sales of trade goods.
02. Prepare the respective ledger accounts.
There may be some other transactions other than the transactions recorded in
those journals. These transactions cannot be recorded in these journals.
10.3 Examples
General :- Journal
K Purchase of a machine on credit basis to be used in the business.
The above sections
K Purchase of ahow
discussed landto
onrecord
credit basis to expand
day-to-day the business
transactions of aactivities.
business
Owner uses goods of the business for his own purpose.
in the Purchase Journal and Sales Journal. These journals are used to record only
K
one type of transaction. Hence, they are known as specialized journals.
These transactions should be recorded in a separate prime entry book. The prime
entry book used to
Example :- record these transactions is known as the General Journal.
Sales Journal is used to record only credit sales of trade goods.
Accordingly, transactions that are not recorded in other prime entry books are
recorded
There may at first in theother
be some General Journal. other than the transactions recorded in
transactions
those journals. These transactions cannot be recorded in these journals.
The source document used in recording transactions in the General Journal is the
journal Examples
voucher. A:-General Journal can be prepared as follows.
Purchase of a machine on credit basis to be used in the business.
Purchase of a land General Journal
on credit basis to expand the business activities.
Owner uses goods of the business for his own purpose.
Led-
Voucher Dr. Cr.
Date Description ger
No. should be recorded in a separate prime entry book.
These transactions Rs. The [Link]
Page
entry book used to record these transactions is known as the General Journal.
Accordingly,
01 transactions
02 that are not
03recorded in other 04
prime entry
05 books06 are
recorded at first in the General Journal.
The source document used in recording transactions in the General Journal is the
journal voucher. A General Journal can be prepared as follows.
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General Journal
Led-
Voucher Dr. Cr.
Date Description ger
No. Rs. Rs.
Page
01 02 03 04 05 06
01. Transaction date
02. Number of the Journal Voucher
03. Accounts to be debited and credited with the narration
04. Respective ledger page numbers of accounts
05. and 06. Value of the transaction
For every transaction recorded in the General Journal, a brief description known as
narration is written.
Example :-
Purchase of an equipment on credit for the business use for Rs. 10 000
from Silva and Company Private Limited on 28.02.20xx.
General Journal
Voucher Cr.
Date Description L.P. Dr. Rs.
No. Rs.
28.02.20xx Equipment account (Dr) 10 000
Silva Co. Ltd. account 10 000
(Recording of equipment bought
from Silva and Co. Ltd on credit
at a cost of Rs. 10 000)
There are several transactions that are recorded in a General Journal. Out of these,
corrections of accounting errors and adjustment entries are discussed at this level.
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10.4 Instant cash transactions through the electronic
methods of technology.
The methods of conducting business activities have changed with the development
of technology. Today there is a trend of conducting business activities via technological
methods. Following are some instances where transactions are conducted using
technology.
Computerised accounting process instead of manual recording in books.
Use of telephones, text messages and e-mails instead of communicating
through letters with customers and suppliers.
Payment of water bills and electricity bills through the Internet.
Use of cheques, debit cards and credit cards instead of currency notes and coins.
Obtain account details and conduct transactions through the
Internet without going to the bank.
Conduct sales through electronic equipment such as point of sales
machines.
These transactions conducted using these technologies should also be recorded in
the prime entry books and posted to ledger accounts.
Transactions conducted through mobile phones
Spread of mobile phone network all over
Sri Lanka has revolutionised the day to day life
of everyone. Mobile phones with latest technology
has vastly changed the business world as well.
The vastly used mobile phones in Sri Lanka
are now used to settle payments in businesses.
This mobile based settlement system was
first introduced to Sri Lanka by a private
telecommunication service provider in 2012.
Figure 10.2
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Use of mobile phones makes it easy to conduct business activities. The following
are some advantages.
Ability to communicate information quickly with any party related to the
business
Easy to conduct banking activities via mobile phones
Easy to obtain required information to take business decisions by browsing
Internet through data connection of mobile phones
At present, most banks provide mobile banking facilities to their customers.
These services are known as tele banking services. The following tasks can be
accomplished using the tele-banking facility.
Check the bank account balance
Obtain bank statements
Payment of electricity bills and water bills
Transfer of funds from one account to another account
Place orders for cheque books
Advantages of tele-banking facility
Ability for businessmen to control their funds without going to the bank
at anytime and anywhere.
Easy to conduct transactions.
Financial transactions can be fulfiled quickly.
Save time and effort
Problems of safety when transporting coins and notes is absent when
using the tele-banking facility
Computer Aided Accounting (CAA)
Currently, most businesses have computerised
their accounting activities. Accounting data,
the input is entered to an accounting software
and the required accounting outputs are
obtained. The day to day transactions are
entered into the computer system. These data
is recorded, stored, interpreted and
communicated to the stakeholders of a
business using computers. Figure 10.3
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At the end of an accounting period, financial statements would be prepared
automatically by computers. The following accounting packages are being used at
present for this purpose.
³ Accpac
³ Quickbook
³ MyOB
³ Sage
Advantages and disadvantages of computerised accounting are as follows.
Advantages
Time is saved as transactions are quickly recorded in the accounting
system and financial reports are automatically prepared.
Money is saved through reduced labour requirement
High level of accuracy in accounting reports is possible because those
reports are automatically prepared.
Ability to obtain the relevant data easily and quickly.
Disadvantages
The risk of deletion of data due to power failures, computer viruses and
other technical faults.
Risk of unauthorized access and changing of computer data
A large sum of money is required to purchase computer software.
Activity 04
01. List down some advantages of tele banking.
02. It would be beneficial for a business to record transactions using computers
rather than recording in books manually. Debate on this statement with
your friends.
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