3.3 Recording in Purchases Day Books

3.3 Recording in Purchases Day Books

To maintain clear and organized financial records, a business uses books of prime entry to log daily transactions before transferring them to the ledgers. For supplier transactions, the primary journals are the Purchases Day Book and the Purchases Returns Day Book. This section covers their structure, the recording process from invoices and credit notes, and the double-entry postings of their periodic totals to the general ledger and the subsidiary payables ledger.

The Role of Purchases Books of Prime Entry

Credit purchases generate a high volume of documents. Recording every invoice directly into the general ledger would make it difficult to read and manage. Instead, businesses use day books as a staging area:

• Purchases Day Book (PDB): A chronological list of all invoices received from suppliers for goods purchased on credit. It is only used for credit purchases of trade goods or materials. (Cash purchases are recorded in the cash book, and purchases of non-current assets are typically recorded in the general journal).
• Purchases Returns Day Book (PRDB): A chronological list of all credit notes received from suppliers for returns of credit purchases or allowances for damaged goods.

Structure and Columns of the Purchases Day Book (PDB)

The PDB has columns to extract the necessary financial data from supplier invoices:

• Date: The invoice date or the date the transaction is entered.
• Supplier Name: The name of the credit supplier.
• Invoice Number / Reference: The supplier's invoice number.
• Folio / Account Code: A reference linking to the individual supplier's account in the Payables Ledger (e.g., PL15).
• Net Column (£): The cost of the goods before tax.
• VAT Column (£): The input tax charged by the supplier (standard UK rate is 20%).
• Gross / Total Column (£): The total liability owed to the supplier.
• Formula: Gross = Net + VAT

Structure and Columns of the Purchases Returns Day Book (PRDB)

The PRDB mirrors the structure of the PDB, but records credit notes:

• Date: The date the credit note is recorded.
• Supplier Name: The name of the supplier issuing the credit note.
• Credit Note Number: The supplier's credit note reference.
• Folio / Account Code: Reference to the supplier's payables ledger account.
• Net Column (£): The value of goods returned before VAT.
• VAT Column (£): The VAT portion being adjusted.
• Gross / Total Column (£): The total reduction in the amount owed to the supplier.

Monthly (or Period-End) Posting Routine

At the end of each period, the bookkeeping department totals the day books and posts them to the accounts. This involves two levels of posting:

1. The Payables Ledger (Subsidiary Ledger)

The Payables Ledger contains individual accounts for each supplier. Postings are made daily:

• Invoices from PDB: Posted to the credit side of the supplier's individual account (increasing our liability).
• Credit Notes from PRDB: Posted to the debit side of the supplier's individual account (decreasing our liability).
• Note: The Payables Ledger is a memo ledger used for tracking individual balances. It is not part of the double-entry system.

2. The General Ledger (Double-Entry System)

At the end of the period, the column totals are posted to the general ledger:

• PDB Double Entry: Debit Purchases (Net) + Debit VAT Control (VAT) = Credit PLCA (Gross)
• PRDB Double Entry: Debit PLCA (Gross) = Credit Purchases Returns (Net) + Credit VAT Control (VAT)

Detailed Worked Example of Day Book Postings

Consider the following credit purchases transactions for a business in June:

Invoices Received:

• June 3: Invoice #5011 from X Corp (Folio: PL/XC). Net £500.00, VAT £100.00, Gross £600.00.
• June 14: Invoice #2033 from Y Ltd (Folio: PL/YL). Net £900.00, VAT £180.00, Gross £1,080.00.
• June 21: Invoice #7721 from Z plc (Folio: PL/ZP). Net £400.00, VAT £80.00, Gross £480.00.

Credit Notes Received:

• June 10: Credit Note #CN45 from X Corp. Net £100.00, VAT £20.00, Gross £120.00.
• June 25: Credit Note #CN02 from Y Ltd. Net £50.00, VAT £10.00, Gross £60.00.

Day Book Entries

Purchases Day Book (June 2026)

Purchases Returns Day Book (June 2026)

Posting to the General Ledger

At the end of June, the totals are posted as follows:

Purchases Account (General Ledger)

• Debit: June 30 - Purchases Day Book Total Net - £1,800.00

VAT Control Account (General Ledger)

• Debit: June 30 - Purchases Day Book Total VAT - £360.00
• Credit: June 30 - Purchases Returns Day Book Total VAT - £30.00

Purchases Ledger Control Account (PLCA) (General Ledger)

• Credit: June 30 - Purchases Day Book Total Gross - £2,160.00
• Debit: June 30 - Purchases Returns Day Book Total Gross - £180.00

Purchases Returns Account (General Ledger)

• Credit: June 30 - Purchases Returns Day Book Total Net - £150.00

Posting to the Payables Ledger (Individual Accounts)

Daily entries are posted to track what we owe each vendor:

X Corp Account

• Credit: June 3 - Invoice 5011 (Gross) - £600.00
• Debit: June 10 - Credit Note CN45 (Gross) - £120.00
• Closing balance owed: £480.00 (Credit)

Y Ltd Account

• Credit: June 14 - Invoice 2033 (Gross) - £1,080.00
• Debit: June 25 - Credit Note CN02 (Gross) - £60.00
• Closing balance owed: £1,020.00 (Credit)

Z plc Account

• Credit: June 21 - Invoice 7721 (Gross) - £480.00
• Closing balance owed: £480.00 (Credit)

The total of individual balances in the Payables Ledger is £480 + £1,020 + £480 = £1,980.00. This reconciles perfectly with the PLCA balance in the General Ledger (£2,160 credit minus £180 debit = £1,980.00 credit liability).