Purchases · Level: Exam
Journal entry: Purchase with carriage inwards
Carriage on purchases adds to the cost of the goods. It goes to Carriage inwards, and VAT is charged on both amounts.
Worked example
We buy goods on credit from Smith Ltd: goods £9,650.00 net, carriage £250.00 net, plus 20% VAT on the total.
Correct journal entry
Purchases £9,650.00, Carriage inwards £250.00, Input VAT £1,980.00 / Trade payables £11,880.00
Debit
Purchases£9,650.00
Carriage inwards£250.00
Input VAT£1,980.00
Credit
Trade payables£11,880.00
Why?
- Purchases: expense incurred → debit
- Carriage inwards: expense incurred → debit
- Input VAT: asset increases → debit
- Trade payables: liability increases → credit
Calculation
- Total net: £9,650.00 + £250.00 = £9,900.00
- VAT: 20% of £9,900.00 = £1,980.00
- Gross amount: £9,900.00 + £1,980.00 = £11,880.00
Typical mistake
Booking carriage as a general expense or charging VAT on the goods only.
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 on credit from Evans Ltd: goods £9,200.00 net, carriage £410.00 net, plus 20% VAT on the total.
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 with carriage inwards?
Example: Purchases £9,650.00, Carriage inwards £250.00, Input VAT £1,980.00 / Trade payables £11,880.00.
How do I recognise this case?
Carriage on purchases adds to the cost of the goods. It goes to Carriage inwards, and VAT is charged on both amounts.
What is the typical mistake?
Booking carriage as a general expense or charging VAT on the goods only.