Purchases · Level: Basics
Journal entry: Purchase of goods paid by bank transfer
The goods are paid for at once by bank transfer, so the bank balance goes down instead of creating a payable.
Worked example
We buy goods from Evans Ltd for £850.00 plus 20% VAT and pay immediately by bank transfer.
Correct journal entry
Purchases £850.00, Input VAT £170.00 / Bank £1,020.00
Debit
Purchases£850.00
Input VAT£170.00
Credit
Bank£1,020.00
Why?
- Purchases: expense incurred → debit
- Input VAT: asset increases → debit
- Bank: asset decreases → credit
Calculation
- VAT: 20% of £850.00 = £170.00
- Gross amount: £850.00 + £170.00 = £1,020.00
Typical mistake
Debiting the gross amount to Purchases and forgetting input VAT.
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 from Brown Supplies plc for £3,850.00 plus 20% VAT and pay immediately by bank transfer.
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 purchase of goods paid by bank transfer?
Example: Purchases £850.00, Input VAT £170.00 / Bank £1,020.00.
How do I recognise this case?
The goods are paid for at once by bank transfer, so the bank balance goes down instead of creating a payable.
What is the typical mistake?
Debiting the gross amount to Purchases and forgetting input VAT.