Purchases · Level: Basics
Journal entry: Cash purchase of goods
Small purchases are often paid in cash. The entry is the same as a bank purchase, with Cash credited.
Worked example
We buy goods for £350.00 plus 20% VAT and pay in cash.
Correct journal entry
Purchases £350.00, Input VAT £70.00 / Cash £420.00
Debit
Purchases£350.00
Input VAT£70.00
Credit
Cash£420.00
Why?
- Purchases: expense incurred → debit
- Input VAT: asset increases → debit
- Cash: asset decreases → credit
Calculation
- VAT: 20% of £350.00 = £70.00
- Gross amount: £350.00 + £70.00 = £420.00
Typical mistake
Debiting Cash: money leaves the till, so Cash decreases.
Your turn
Three problems on exactly this case, with different numbers. Amounts work with or without separators, e.g. 2,400.00 or 2400.
Transaction
We buy goods for £490.00 plus 20% VAT and pay in cash.
Debit
Assets up · expenses · liabilities down
Total debit£0.00
Credit
Liabilities up · income · assets down
Total credit£0.00
Frequently asked questions
What is the journal entry for cash purchase of goods?
Example: Purchases £350.00, Input VAT £70.00 / Cash £420.00.
How do I recognise this case?
Small purchases are often paid in cash. The entry is the same as a bank purchase, with Cash credited.
What is the typical mistake?
Debiting Cash: money leaves the till, so Cash decreases.