## **Learning Outcomes**

After reading this article, you will be able to explain how purchases and purchase returns day books are used to record supplier invoices and credits. You will distinguish between purchase invoices and credit notes, outline procedures for checking and authorising these documents, and apply double-entry principles to account for purchases and returns accurately in the general ledger, as required for ACCA FA1.

## **ACCA Recording Financial Transactions (FA1) Syllabus**

For ACCA Recording Financial Transactions (FA1), you are required to understand how to record and control business purchases and returns. Specifically, this topic covers:

- The use of purchases and purchase returns day books to record supplier invoices and credit notes
- The process of checking, authorising, and coding purchase invoices and credit notes
- Correct posting of purchases and purchase returns into the accounting records
- Application of double-entry bookkeeping to purchases and purchase returns
- The importance of supporting documentation for purchases and subsequent credits

## **Test Your Knowledge**

_Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision._

1. Which document is prepared by the supplier to notify a business that the amount it owes has been reduced?
   a) Purchases day book  
   b) Purchase invoice  
   c) Purchase credit note  
   d) Purchase order

2. What are the correct double-entry postings for goods returned to a supplier, assuming sales tax is not applicable?
   a) Debit Payables, Credit Purchases  
   b) Debit Purchases, Credit Payables  
   c) Debit Purchases Returns, Credit Payables  
   d) Debit Payables, Credit Purchases Returns

3. State one key purpose of the purchases day book.

4. What supporting documents are checked before authorising a supplier invoice for payment?

## **Introduction**

All businesses purchase goods or services from suppliers, usually receiving credit terms. Accurate recording and control of these transactions is essential for financial management. Purchases and purchase returns day books are used to record details of supplier invoices and any credits (such as for returned goods or overcharges), before amounts are posted to the accounting records. You need to know how to record, check, and authorise these transactions, and how to post them correctly into the general ledger.

> **Key Term: purchases day book**  
> A primary record used to list all supplier invoices for goods and services purchased on credit before they are posted to the ledger accounts.
>
> **Key Term: purchase returns day book**  
> A primary record used to record credit notes received from suppliers for goods returned or services not provided.
>
> **Key Term: purchase invoice**  
> A document received from a supplier setting out details and the monetary amount due for goods or services supplied on credit.
>
> **Key Term: credit note (supplier)**  
> A document issued by a supplier to reduce the amount owed by the buyer, typically due to goods returned or overcharges on an invoice.

## **Recording Purchases: The Purchases Day Book**

Businesses typically receive many invoices from suppliers each week. To manage this efficiently, all purchase invoices are first listed in the purchases day book. This day book is sometimes known as the purchases journal or book of prime entry.

Key features:

- Only credit purchases are recorded (cash purchases go directly to the cash book).
- Each entry should include: date, supplier name, invoice number, and net and gross amounts.
- Invoices are checked against supporting documents (purchase order and delivery note) before being entered.

The total value of invoices recorded over a period (usually a week or month) is posted as a batch to the purchases account in the general ledger. At the same time, individual suppliers’ accounts in the payables ledger are updated.

### **Worked Example 1.1**

A business received the following two supplier invoices in a week:

- Supplier A: \$1,900 for office supplies
- Supplier B: \$2,500 for equipment parts

Both invoices are recorded in the purchases day book. At the end of the week, what entries are required in the general ledger?

> **Answer:**
>
> - Debit Purchases (general ledger) with \$4,400 (the total of both invoices)
> - Credit Payables (general ledger) with \$4,400
> - Individual supplier accounts in the payables ledger are credited with \$1,900 and \$2,500 respectively.

## **Recording Purchase Returns: The Purchase Returns Day Book**

If goods are returned to a supplier or an overcharge is corrected, the supplier will issue a credit note. Details from these credit notes are recorded in the purchase returns day book.

Key points:

- Only credit notes from suppliers are recorded here.
- Each entry shows supplier, date, credit note number, and the value.

Regularly, the total value of credits in the purchase returns day book is posted to the purchase returns account in the general ledger (sometimes called the returns outwards account). Supplier accounts are updated to reduce the amount owed accordingly.

### **Worked Example 1.2**

A supplier issues a credit note for \$300 after a business returns faulty goods. What general ledger entries are needed?

> **Answer:**
>
> - Debit Payables with \$300 (reduces the liability to the supplier)
> - Credit Purchase Returns with \$300 (records the return as an expense reduction)
> - The supplier’s account in the payables ledger is debited.

## **Process and Document Checks**

Before recording or authorising a purchase invoice:

- Confirm the invoice matches the purchase order and delivery note.
- Check quantities, prices, and supplier details.
- Ensure correct calculation of totals and any trade discounts.

Credit notes should also be checked to ensure the return or adjustment is correct and supported by documentation (such as a goods returned note).

> **Key Term: goods returned note**  
> An internal document used by a business to confirm details of goods being sent back to a supplier.

## **Authorising and Coding Invoices and Credits**

A responsible staff member must authorise all purchase invoices and credit notes before payment or processing. This involves checking all supporting documentation and calculations.

Account codes should be assigned to direct expenses, assets, or inventory, as appropriate. Coding ensures amounts are posted to the correct general ledger account.

### **Worked Example 1.3**

A business receives a purchase invoice for \$850 for tools (coded to equipment expenses), and a corresponding credit note for \$50 for tools returned. Both are approved and entered in the day books. How are these posted?

> **Answer:**
>
> - Purchases account is debited with \$850.
> - Payables account is credited with \$850.
> - The credit note is posted as a \$50 debit to Payables (reducing the amount owed) and a \$50 credit to Purchase Returns (reducing expenses).

## **Posting to the General Ledger**

After checking and authorising invoices and credit notes, the totals from the purchases and purchase returns day books are transferred (posted) to the main ledger at regular intervals.

The typical entries are:

- Debit Purchases, Credit Payables (for total credit purchases)
- Debit Payables, Credit Purchase Returns (for total credit notes/returns)

## **Summary**

Purchases and purchase returns day books provide a systematic way to record supplier invoices and credits before integrating amounts into the main accounting records. Proper checking, authorisation, and coding ensure only valid, accurate transactions are recorded, enabling complete double-entry bookkeeping and supporting supplier account control.

### **Exam Warning**

> Take care to distinguish between credit notes and purchase invoices. Recording a credit note as an invoice will overstate expenses and liabilities. Always check document type before entry.

## **Key Point Checklist**

_This article has covered the following key knowledge points:_

- The roles of the purchases and purchase returns day books
- Correct procedures for recording, checking, and authorising purchase invoices and credit notes
- How to group and post purchases and credits to the general ledger and payables ledger
- The use of supporting documentation to validate purchases and returns
- The double-entry bookkeeping required for purchases and returns

## **Key Terms and Concepts**

- purchases day book
- purchase returns day book
- purchase invoice
- credit note (supplier)
- goods returned note

Purchases and purchase returns day books - Recording supplier invoices and credits