What is a Purchase Ledger?
Purchase ledger is the ledger in which all the accounting transactions related to the purchase of goods or services by the company during a period of time is recorded, showing the lists of the purchases along with the amount which the company has paid to its supplier or the amount due to the supplier.
Example of Purchase Ledger
For Example, the following is the purchase journal of the Company for the period of July-2019.
Prepare the purchase ledger using the purchase journal for the month as given below:
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Solution
From the purchase journal, entries will be posted on the purchase ledger having the accounts of the different suppliers of the company, which is as follows:
Advantages
- It helps in monitoring all the purchases made by the company during the period and ensuring that sufficient purchases are made. In case there is less purchase then required, then it will hamper its production process, and on the other side, if there are more purchases then required, then it will block the money of the company, which could be used for other purposes.
- This shows the balances due to the creditors from whom the purchases have been made on credit. This helps the company in knowing the liability at the particular point of time which it owes to its suppliers.
- The purchase ledger has a list of all the purchases. Thus it can give a list of the frequent suppliers and the list of the supplies that involve a considerable sum of money.
- In case the company wants to conduct the information about the purchases made by it. It can use the purchase ledger as it contains different information like date of purchases, supplier name, invoice number, purchase order number, amount, tax amount, etc.
Disadvantages
- In case of an error by a person in recording the purchases in the purchase ledger of the company; It can, at the same time, lead to overstatement or understatement in the balances of the accounts which use such ledger as its base.
- It requires time and involvement of the person who is responsible for the recording of the transactions in this ledger.
Important Points
- It has information about individual accounts of different suppliers of the business from whom it has made purchases during the period with a credit or without credit.
- It helps in monitoring all the purchases made by the company during the period and ensuring that sufficient purchases are made. In case there is less purchase then required, then it will hamper its production process, and on the other side, if there are more purchases then required, then it will block the money of the company, which could be used for other purposes.
- The balances of this ledger of the company are aggregated periodically, which is then posted into the purchase ledger control account. So, it is the summary of the ledger having no detailed transactions.
- Data fields might include different information wherever applicable. Like date of purchases, name of the supplier or the related code, invoice number of the invoice given by the supplier, purchase order number, code used by the company for identifying the purchases, the amount paid or payable to the supplier, tax paid which applied to that purchases, the status of the payment, etc.
Conclusion
Purchase ledger records the transaction of the company involving the purchases of the goods and services from the suppliers. It contains detailed information on the purchases made by the company, which helps in the analysis of the different aspects. The balances are aggregated periodically, which is then posted into the purchase ledger control account.
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