Purchasing is done for two reasons one is for buying goods for the resale or if the company manufactures than for further improvement so that it can be resold and other is for purchasing the asset. In this post I will be concentrating on first reason. Given below is the journal entry for goods purchased on cash –
Purchase account Dr
Cash account
In the above journal entry since goods have come into the business purchase is debited and since cash goes out it is credited.
If the company buys on credit than following journal entry will be made –
Purchase account Dr
To Creditors
Since company has bought goods on credit and to reflect the increase in liability of the company creditors account is credited.