Debit and Credit Ledger selection on Cash Purchase of Trading Goods

Journal Entry on Cash Purchase of Trading Goods when Indirect Tax like GST,VAT etc. is charged and you are eligible to claim ITC(Input Tax Credit)

Meaning of Cash Purchase: 

Cash Purchase means goods purchased/received from the supplier or vendor with immediate payment against that goods by Cash/Bank.

Detail Explanation with Example.

Let's take an example for better understanding.

In the Books of Mr.Sanjay Gupta,find out the Debit and Credit Ledgers involved of the following transaction.

Goods purchased from M/s.Parbati Enterprises, Bhubaneswar as per Cash Memo No-489 for ₹30,499/- including GST 12% on dated 05/04/2020

Steps and Procedures for Decision making for Debiting and Crediting of Ledger Accounts of the above transaction.

Step - 1

In first step,we have to identify the Ledger Accounts involved in the above transaction.

As a result,we found three Ledger Accounts.

1) Purchase A/c

2) GST A/c(IGST/CGST and SGST are used as per applicability of GST Act.)

3) Cash A/c

Step - 2

In second step,we have to find out the type of Ledger Accounts involved by using either one of the Accounting Approach.

The above three Ledger Accounts mentioned in step-1 are related to type

Nominal Account(Purchase A/c),Personal Account(GST A/c) and Real Account(Cash A/c) in Traditional Approach.

Asset Account(Purchase A/c),Asset Account(GST A/c) and Asset Account(Cash A/c) in Modern Approach.

Note: In Traditional Approach GST A/c is under type Personal Account (because GST A/c stands on behalf of Govt. Account)

Step - 3

In third step,we have to look at the nature or flow of the Ledger Accounts involved by using either one of the Accounting Approach.

Purchase A/c - Expense,GST A/c - Receiver and Cash A/c - Goes Out for the business in Traditional Approach.

Purchase A/c(Asset Account) increases,GST A/c(Asset Account) increases and Cash A/c(Asset Account) decreases in Modern Approach.

Step - 4 

In fourth and final step,now it is time to place the Ledger Accounts in their respective column, i.e Debit Column or Credit Column by applying the Debit and Credit Rule using either one of the Accounting Approach.

As a result,Purchase A/c shows a Debit effect for ₹27,231.25

GST A/c shows a Debit effect for ₹3267.75 and

Cash A/c shows a Credit effect for ₹30,499.00

Note : In the above transaction,

Total Invoice Value including GST 12% is  ₹30,499.00 

Purchase Value of Goods={₹30,499/(100+12)} x 100 

or Taxable Value of Goods=(₹30,499/112) x 100=₹27,231.25

GST 12% on Purchase Value of Goods  =  ₹3,267.75

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