Purchases · Level: Basics
Journal entry: Purchase of goods on credit
Goods arrive now and are paid for later. "On credit", "purchase invoice" or "payable within 30 days" tell you a trade payable arises.
Worked example
Purchase invoice from Brown Supplies plc for a delivery of goods: £3,850.00 plus 20% VAT, payable within 30 days.
Correct journal entry
Purchases £3,850.00, Input VAT £770.00 / Trade payables £4,620.00
Debit
Purchases£3,850.00
Input VAT£770.00
Credit
Trade payables£4,620.00
Why?
- Purchases: expense incurred → debit
- Input VAT: asset increases → debit
- Trade payables: liability increases → credit
Calculation
- VAT: 20% of £3,850.00 = £770.00
- Gross amount: £3,850.00 + £770.00 = £4,620.00
Typical mistake
Crediting Bank although nothing has been paid yet.
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
Purchase invoice from Brown Supplies plc for a delivery of goods: £14,550.00 plus 20% VAT, payable within 30 days.
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 on credit?
Example: Purchases £3,850.00, Input VAT £770.00 / Trade payables £4,620.00.
How do I recognise this case?
Goods arrive now and are paid for later. "On credit", "purchase invoice" or "payable within 30 days" tell you a trade payable arises.
What is the typical mistake?
Crediting Bank although nothing has been paid yet.