Bookkeeping for credit purchases

Step 1 - Total the purchases day book, recording the total at the bottom for Total, VAT and Net.

Step 2 - Complete the double-entry by transferring these totals into the General Ledger. Remember the rules around debit and credit entries with mnemonic DEAD CLIC.

The gross amount (the amount including including VAT) is recorded as a credit in the payables ledger control account as we are increasing our liabilities (the amount we owe a supplier).

The VAT amount is recorded in the VAT account as a debit as we are decreasing our liabilities (the amount we owe HMRC).

The net amount (total excluding VAT) is recorded in the purchases account as a debit (as we are increasing our expenses).

The whole process is essentially the reverse of the process for credit sales.

Step 3 - Update the Payables Ledger. Similarly to the receivables ledger we saw for sales we also need to see which suppliers we need to pay so we use the payables ledger to record the individual transactions under each supplier. Entries here are made on the credit side (the same side as the control account).