When a business purchases inventory, it needs to record the transaction in its accounting records. The journal entry for the purchase of inventory depends on whether the purchase is made on credit or with cash. Below are examples of journal entries for both scenarios:
1. Purchasing Inventory with Bank
Example 1: Bank Purchase of Inventory
Your business buys inventory worth $5,000 on August 1, 2024, and pays cash for the purchase.
Journal Entry on August 1, 2024:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 08-01-2024 | Inventory/Purchase A/c Debit | 5,000 | |
| 08-01-2024 | To Bank A/c | 5,000 |
Explanation:
- Inventory will debited to reflect the increase in assets due to the purchase of inventory.
- Bank will credited to account for the cash outflow from the purchase.
2. Purchasing Inventory on Credit
Example 2: Credit Purchase of Inventory
Your business buys inventory worth $10,000 on August 1, 2024, from a supplier on credit.
Journal Entry on August 1, 2024:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 08-01-2024 | Inventory/Purchase A/c Debit | 10,000 | |
| 08-01-2024 | To Accounts Payable A/c | 10,000 |
Explanation:
- Inventory will debited to recognize the increase in assets due to the purchase of inventory.
- Accounts Payable will credited to reflect the liability created by purchasing on credit.
3. Purchasing Inventory with a Combination of Cash and Credit
Example 3: Partial Cash and Credit Purchase of Inventory
Your business purchases $8,000 worth of inventory on August 1, 2024, paying $3,000 in cash and the remaining $5,000 on credit.
Journal Entry on August 1, 2024:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 08-01-2024 | Inventory/Purchase A/c Debit | 8,000 | |
| 08-01-2024 | To Bank A/c | 3,000 | |
| 08-01-2024 | To Accounts Payable A/c | 5,000 |
Explanation:
- Inventory will debited for the total cost of the inventory purchased.
- Bank will credited to record the portion paid in cash.
- Accounts Payable will credited to recognize the portion of the purchase made on credit.
4. Purchasing Inventory with a Discount
Example 4: Purchase with a Discount (Credit Purchase)
Your business purchases $12,000 worth of inventory on credit on August 1, 2024. The supplier offers a 2% discount if payment is made within 10 days. You pay within the discount period.
Initial Journal Entry on August 1, 2024:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 08-01-2024 | Inventory/Purchase A/c Debit | 12,000 | |
| 08-01-2024 | To Accounts Payable A/c | 12,000 |
Payment Journal Entry within Discount Period:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 08-10-2024 | Accounts Payable A/c Debit | 12,000 | |
| 08-10-2024 | To Bank A/c | 11,760 | |
| 08-10-2024 | To Inventory (Discount) A/c | 240 |
Explanation:
- Accounts Payable will debited to remove the liability from the books.
- Bank will credited to record the cash outflow.
- Inventory will credited for the discount received, reducing the inventory cost.
These examples show how various scenarios involving the purchase of inventory are recorded in the accounting records. Journal entries ensure that inventory purchases are properly reflected in both the balance sheet (as an asset) and the income statement (through cost of goods sold when the inventory is sold).