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Friday, July 15, 2011

Usual Terms Relating to Purchase Book

  1. Invoice: Purchase book is prepared on the basis of a statement which is called as an invoice. It consists the details of quantities and prices of materials or goods purchased. It also shows the discount allowed and the terms and conditions of payment. An invoice is written or printed document sent by seller to buyer which contains the following components.
  • Quantity of goods.
  • Rate per unit and the total amount of goods.
  • Quality, brand and size of goods.
  • Amount of discount allowed.
  • Means and mode of transport etc.
2. Trade Discount: Trade discount is a deduction allowed from the invoice or list price of the goods. It is deducted from the invoice and allowed by the supplier to the retailers if they purchase goods more than a certain quantity or certain amount. A certain percentage of gross amount of purchases is considered as trade discount.

Purchase Book

Purchase book is also known as Purchase Journal or Bought Book or Purchase Day Book or Invoice Book. It is used for recording all credit purchases of goods, meant for resale. Cash purchases are not recorded in this book. Cash purchases are entered in the cash book. Moreover, credit purchase of assets for the business are also not entered in this book. For instance, purchase of a motorbike on credit by a cloth-seller is not recorded in the purchase book whereas the same credit purchase by a motorbike dealer must be recorded in his purchase book.

Features of Purchase Book:
  1. Only credit purchase of goods are recorded.
  2. Those goods purchased on credit must be for re-sale.
  3. Cash purchases are not recorded.
  4. Asset purchases are also not recorded.
Importance of Purchase Book:
  1. To know the total credit purchase of goods.
  2. To know goods purchased from various supplier and the amount due to them.
  3. To make easier for the preparation of trading account.
  4. To save time and money for recording it.

Importance or Objectives or Advantages of Subsidiary Books

  1. Saving of Time and Labor: If all the transactions of similar nature are recorded together in a separate book, a considerable amount of labor and time can be saved. There is no need of preparing journal for each transaction with its narration. In other hands, different subsidiary books may be prepared by different clerks so that all the transactions are entered in subsidiary immediately as they occur. For example, many credit purchases of all the day can be recorded in purchase book as a single entry.
  2. Divisions of Works: Recording of transaction in subsidiary books can be performed by different clerk as per nature of subsidiary books. It means a person may be employed to record the purchase on credit whereas another may be for credit sales. Thus, it introduces the division of labor. Division of labor increases the work efficiency of labors. The working labors have the specialization on their job.
  3. Quick Access to Information: Since the transactions relating to one particular head are recorded in a separate book, it is easy to get any type of information in detail.
  4. Possibility of Internal Check: Different subsidiary books may be maintained by different clerks and the balance of a subsidiary book determined by a clerk also may be recorded by another clerks while posting into ledgers and preparing trial balance. Thus, error or fraud committed by one may be checked by another.

Subsidiary Book

Some transactions like credit purchase, credit sales, return of goods purchased, return of goods sold, bills receivable, bills payable, cash paid and received etc are occurred so many times in a day. To enter such repetitive transactions in a journal consumes more labor, time and money. When the business transactions are numerous, one person may not be able to maintain all the books of accounts himself. Recording of all the books of accounts himself. Recording of all transactions in a journal can not avail the classified information of a particular transaction, say information about purchase, information about sale etc. Thus, transactions relating to one particular head are recorded in a separate book. In other words, a separate book is maintained to record the similar transactions which are called "Subsidiary Books". It is also called as "Special Journals" or "Sub-Division of Journal" or "Day Book".

In the modern book-keeping, the repetitive or routine transactions are recorded in subsidiary books and the occasional transactions which occur in a long time interval are recorded in a general journal. Purchase Book, Sales Book, Sales Return Book, Purchase Return Book etc are some subsidiary books.

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