Cash Purchase of Goods

A business can make a cash purchase using either cash or cheque. The payment to the supplier is immediate, there is no credit given by the supplier for the goods.

If for example the cash purchase of goods is for £1,000 buy cheque.

How to Record the Cash Purchase of Goods

The accounting records will show the following bookkeeping entries when the business makes a cash purchase of goods:

Cash Purchase Journal Entry
Account Debit Credit
Purchases 1,000
Cash 1,000
Total 1,000 1,000

Cash Purchase Bookkeeping Entries Explained

Debit – What came into the business
The goods came into the business and will be held as part of stock until sold.

Credit – What went out of the business
Cash went out of the business with the cash purchase.

The Accounting Equation

The Accounting Equation, Assets = Liabilities + Capital means that the total assets of the business are always equal to the total liabilities plus the equity of the business This is true at any time and applies to each transaction. For this transaction the Accounting equation is shown in the following table.

Fixed Asset Purchase Accounting Equation
Assets = Liabilities + Owners Equity
Purchases – Cash = None + None
1,000 – 1000 = 0 + 0

In this case assuming the goods have not yet sold, one asset (inventory) will have increased and another Asset (cash) will have decreased by same amount with the cash purchase.

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Cash Purchase of Goods November 6th, 2016Team

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