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.

Debit and Credit Ledger selection on Cash Purchase of Trading Goods

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

Debit and Credit Ledger selection on Cash Purchase of Trading Goods
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.

Type of Ledger Accounts involved on Cash Purchase of Trading Goods
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.

Flow of Ledger Accounts on Cash Purchase of Trading Goods

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.

Debit and Credit Rule
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

Cash Purchase of Trading Goods - Purchase A/c(Dr.),GST A/c(Dr.),Cash A/c(Cr.)
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

<< Previous | Next >>

Location: Cuttack, Odisha, India

Comments

Post a Comment

Popular posts from this blog

Ledger Account and Account Head

Image
Meaning of Ledger Account and Account Head in Financial Accounting with example.  Ledger Account : A ledger Account is a summarized statement of transactions related to a particular Person, Asset/Liability, or Income/Expense for a particular period showing opening and closing balance. A Ledger Account is posted from the Journal Register or Journal Book,commonly in a date wise ascending order. The transaction date of Ledger Account is same as the transaction date of Journal Register. In practical,Accountants omit Recording of Journal Register and post Ledger Account directly from Primary documents like Credit Voucher,Debit Voucher,Purchase Invoice,Sales Invoice,Bank Payment Acknowledgement,Bank deposit slip or Pay-in-slip etc. to avoid more time consumption. Name and Address of the Business Organization is mentioned on the top of the Ledger Account. Below the Name and Address of Organization, Name and Address of other party Ledger Account is mentioned in case of Personal Accounts like S
Read more

Journal in Financial Accounting

Image
Meaning of Journal in Financial Accounting with Example Journal is a first Accounting Record Book,in which all the transactions of a business organization are recorded in chronological or orderly manner i.e ascending date wise order from the primary Accounting documents like Credit Voucher,Debit Voucher,Purchase Invoice,Sales Invoice,Bank Payment Acknowledgement,Bank Deposit Slip or Pay-in-Slip etc. Due to the first entry of Original transactions in Journal, this is also called the "Book of Original Entry" For recording the Journal Book or Journal Register,one has to follow/understand the below mentioned three topics. Types or Classification of Accounts - For details about types of Account click here   Debit and Credit Rule - Click here to know details.  Rules of Double Entry System of Book Keeping - For details about Rules of Double Entry System of Book Keeping click here      Sample format of Journal in Financial Accounting Journal consists of Five Columns Date : This c
Read more

Double Entry System of Book-Keeping in Financial Accounting

Image
What is Double Entry System of Book Keeping in Financial Accounting ? A simple Understanding on Definition/Explanation/Outline/meaning of Double Entry system of Book-keeping in Financial Accounting with example Double Entry System of Book-keeping in Financial Accounting is a system, which means each and every Business Transaction affects or involves at least two Account. One is Debit Account and the other is Credit Account It may be more than two Accounts in a Business Transaction If only two Accounts are found in a transaction one Account will be Debited and the other Account or opposite Account will be Credited. If more than two Accounts are found in a transaction the Debit total amount must be equal to the Credit total Amount. Each and every business transaction in Double entry system of Book-Keeping is based on Traditional Approach and Accounting Equation Approach In both the above approaches, Journal Entry for a particular business transaction is same.           a)    Traditiona
Read more