January 26, 2022

SB-Accounting

Accounting + Finance Blog

Purchases Ledger (PL) Meaning, Explanations, Double Entry

Purchases Ledger (PL) Meaning, Explanations, Double Entry
Shares

Purchases ledger (PL) is another type of ledger I need to talk about here. This book is for creditors also called trade or accounts payable. I will consider the meaning and its double-entry application.

Definition of Purchases Ledger

Purchases ledger means part of the main book of account that contains all credit purchases and every other related transaction such as amount transferred to creditors, discount received, and more.

Key Explanations

Purchases ledger is part of the main books of account in bookkeeping and accounting. In a computerized system, the PL may not be known. Why? A more recent name is used. Accounts payable are mostly used. And maybe in the form of a schedule or table. It is the program in the accounting software that prepares this schedule or statement for users’ consumption. More so, business managers use the PL schedule to know who they owe, the amount, and due dates. I have written the accounts payable schedule in this article.

READ ON  Seven Types and Examples of Accounting Errors you should know

PL shows all purchases transactions on credit terms. This means that goods purchased on credit for a trading firm will pass through this ledger. Also, raw materials purchased on credit by a manufacturing business will pass through this book of account.

In addition, the Purchases ledger contains all creditors of the business. However, it does not include loan creditors like the bank, venture capitalist, loans collected from family and friends. What I am saying here is that, if the businessman has collected a loan from a friend. His friend becomes a creditor as a result of the loan. However, the PL doesn’t include this type of creditor. Why? Goods meant for resale were not brought from the friend.

Other Aspect of Purchases Ledger

PL records individual creditors. If Tobi is a creditor for goods purchased by the business. Tobi’s account can be found in the Purchases ledger. Other transactions you will find in the PL includes money transferred to creditors, discount received from the creditor, contra entry (set-off) transaction. Contra entry occurs when the creditor is also a debtor of the business. If the business owes the creditor 5,000 Naira and the creditor owe the business 3,000 Naira (as a debtor) then the two amount can be set off (contra entry), so that the balance of 2,000 Naira will remain unpaid.

READ ON  10 Ultimate significance of Accounting and Bookkeeping

Double Entry Application for Purchases Ledger

The double entry principle for purchases ledger is simple. First, you need to know the type of transaction. If it is a credit transaction on purchases, then PL is the book it should be. There are more, discounts received from creditors who also entered this account as well as cash or bank transfer to the creditors. Here are the double entries applications:

  • Raw materials purchased on credit

Debit: Raw material Purchases account
Credit: Individual creditor account in the PL

  • Goods purchased on credit

Debit: Goods Purchased Account
Credit: Credit: Individual creditor account in the PL

  • When the creditors are paid in part or in full

Debit: Individual creditor account in the PL
Credit: Cash or bank account

  • When a discount is received from a creditor

Debit: Individual creditor account in the PL
Credit: Discount Received Account

  • When the creditor is also a debtor. And there is a need to settle the creditor with the amount he/she owes the business
READ ON  Key Errors that do not affect trial balance: Compensating Error

Debit: Individual creditor account in the PL
Credit: Individual debtor account in the Sales Ledger

Conclusion

To conclude, PL is a ledger for individual creditors and any other transactions relating to it. It is never for cash transactions. Like when the business purchases goods by cash or bank. Also, loan creditors are not posted to the purchases ledger.

Shares