Journal entry for goods purchased by cheque

The journal entry for goods purchased by cheque is as follows:

In this journal entry, purchase account and bank account are involved. The explanation is given below.

Explanation

Purchase

Whenever there is a purchase of goods, the purchase account is debited.

Goods refer to the items which an enterprise manufactures or purchases and sells to generate its business revenue.

If there is a purchase of any other item which does not satisfy the above definition of goods, then the purchase account is not involved.

For example, if stationery is purchased and the enterprise does not trade in stationery items, then the purchase account will not appear in the journal entry.

Payment by cheque

Payment by cheque means the payment amount will be deducted from the bank account balance. Hence, in the given journal entry, the bank account is involved.

The logic behind the debit and credit

The golden rules of accounting

Purchase is an expense hence it is a nominal account. The golden rule for nominal accounts is “Debit all expense and loss and credit all incomes and gains”

Hence, the purchase account is debited.

Bank is a real account and the golden rule of accounting for real accounts is, “Debit what comes in, credit what goes out”.

Hence, the bank account is credited as money is going out of the bank.

Modern rules of accounting

Purchase is an expense account, and expenses are debited when increased and credited when decreased.

Hence, the purchase account is debited here.

A bank account is an asset account. Asset accounts are debited in case of an increase and credited in case of a decrease. Hence, the bank account is credited here.