 In this presentation, we will take a look at the purchases journal for a merchandising company. Purchases journal will be used when we make purchases for a type of system that will typically be more of a manual system as opposed to an automated system. However, it is useful to know this in order to have an automated system because the automated system will generate reports that will be similar to a purchase journal and because it's good to know how different system works to know what are similar, what's different so that we better understand whatever system we are using. The purchases journal may better be described as the purchase journal on account. So that's going to be the major point meaning if we make purchases for something that in cash, if we spent cash to make the purchase, then it will not go in the purchases journal even though we made a purchase because it'll go in the cash payment journal. So this is really kind of a short name. The accounts payable journal might be a better name for it or the purchases journal on account but purchases journal is typically the term that will be used. Now we're going to make a purchase journal for a merchandising company and limit this to a very specific type of purchase which really is when this system would work best because if we purchase a lot of different things on account like we pay expenses and utility bills and you know the gasoline bill and whatnot on expense on account and we put it into accounts payable then it gets a little bit messy because we don't have these separate columns that we could break out we end up putting a lot into other and this system doesn't work quite as well. However if all of our purchases are for something like in the case of a merchandising company inventory then this system works great because we can just record this one line item for the entire time period whether that be the day the week or the month in our case it will be for the month and then sum that up at the end of the time period and post it with one journal entry rather than recording multiple journal entries. So we're going to go through just a couple of these this will look a little bit repetitive here because we will be dealing with the same type of transaction assuming that under the merchandising company we will be debuting inventory and crediting the payable for each transaction for the purchase journal then at the end of the month we're going to make the journal the general journal entry which will be the debit to inventory and credit to accounts payable but not for each transaction for the entire month then we're going to post that to the general ledger this is just an example of some accounts within the general ledger and then we will have the trial balance that will be generated we'll see what the effect is on the trial balance at the end of the month. Note that our numbers will not quite be right until the end of the month because we won't be recording them to the general ledger we won't be generating the financial statements in this system until the end of the time period in our case the end of the month first purchase seven five we're going to say l h and g we made a purchase and that's for 1500 so we're going to say in this case we're going to say it's inventory that we're purchasing we're always purchasing inventory we're using the accounts payable account to purchase inventory so the journal entry is a debit to inventory a credit to payable because we have not yet paid it and it's nice and easy here we just got one number they can represent those two items and this type of setup works great when this is the system being used so then we're going to post this not to the general ledger yet we will post it to the general ledger but not to tell the end of the time period in our case the end of the month we will post here instead as we go to the accounts payable subsidiary ledger the subsidiary ledger being broken out by who we owe by vendor and so we might as well record that as we go because we're going to have to record it time by time line by line so we will record this in the l h and g credit side and increase 1500 to the subsidiary ledger so we're just recording that over we're going to do this once again we got a company this is another vendor we purchased from and we purchased 900 worth of inventory this represents a debit to inventory and a credit to accounts payable for $900 we're going to post that not to the general ledger but to the subsidiary ledger for accounts payable so here it is in the subsidiary ledger credit side we bring that over 900 in the subsidiary ledger next we're going to do this again we're going to say b company we purchased $700 worth from b company and it is going to be posted so that means we're going to debit accounts to see if i'm in debit inventory and credit accounts payable we're going to post that not to the general ledger but to the subsidiary ledger for b company this being the vendor so this 700 we're going to bring down here b company we now owe b company 700 so that's going to be a repetitive type of process we're going to have one more here l h and g once again we purchased another 300 and that's a debit to inventory credit to payable represented here by the 300 just that one line item that being posted then to the subsidiary ledger not to the general ledger we will be posting to the general ledger shortly changing the balance from 1500 up by 300 to 1800 that we owe to l h and g we can then total this up so the 1005 plus the 900 plus the 700 plus the 300 gives us a total of 3400 so 3400 is the total now it's the end of the month and we can use that total then to record the general journal so note the saving of time here only one journal entry instead of in our case for and depending on the process if we're buying inventory constantly throughout the month this could save a lot of time in a manual system so now we're going to record it just like it says up here but not for each transaction instead for the total of the transactions so we're going to debit inventory remember inventory is a debit balance account we're going to make it to go up by doing the same thing to it which is a debit because we're buying inventory and then we're going to credit accounts payable accounts payable is a liability liabilities are credit balance accounts we need to make it go up the bad things going up we owe more money therefore we do the same thing to it in this case another credit then we're going to post this to the general ledger so the general ledger inventory is going to go up i'm sorry yeah inventory is going to go up so it was at a credit of 1593 now it was at a credit because we recorded the sales journal before the purchases journal so it shouldn't be the case that it's not the case that inventory should ever be negative if it is something's wrong because inventory is an asset account and it shouldn't go negative but as we record these transactions as we go when we uh we might end up recording uh the sales journal before the purchase journal and therefore we have a credit and then we'll debit it out 3400 flipping the sign so 1593 plus 3400 this negative plus this positive gives us a debit balance of 1807 then on the accounts payable side we got the accounts payable here being posted there to the accounts payable general ledger taking the balance from zero up by 3400 to 3400 once we have all the general ledger we're just going to show those two ledger accounts that will be affected through this process we then make the trial balance and we'll see these ending balances on the trial balance so here's the 1807 in inventory general ledger here's the 1807 in inventory trial balance here's the 3400 accounts payable general ledger here's the 3400 accounts payable trial balance then we want to just make a comparison of the trial balance general ledger and accounts payable subsidiary ledger note that we're working here when dealing with the purchase journal accounts payable that being a primary account we are dealing with when we are using the uh purchase journal this number here represents the fact that we owe vendors 3400 but it doesn't tell us who we owe we don't know who to write the checks to therefore this account down here in the general ledger gives us typically more detail but in this case of course this only represents the number from the end of the month because we didn't record the detail in the general ledger it has been recorded in the accounts payable um journal so it's on the in the purchases journal so here's the detail if we want to see it by date but it's not going to give us an easy breakout to buy who owes us the money we don't want to see it listed by date we want to see it listed by vendor so here's the same information by vendor the accounts payable subsidiary ledger in other words so l h and g uh owes us or we owe them 1800 a company we owe them 900 b company we owe them 700 if we add those up that adds up to 3400 which of course is matching what is on the accounts payable general ledger as well as the trial balance