A business can make a cash purchase using either cash or cheque. The payment to the supplier is immediate, there is no credit given by the supplier for the goods.
If for example the cash purchase of goods is for 1,000 buy cheque.
How to Record the Cash Purchase of Goods
The accounting records will show the following bookkeeping entries when the business makes a cash purchase of goods:
Cash Purchase Bookkeeping Entries Explained
Debit – What came into the business
The goods came into the business and will be held as part of inventory until sold.
Credit – What went out of the business
Cash went out of the business with the cash purchase.
The Accounting Equation
The Accounting Equation, Assets = Liabilities + Capital means that the total assets of the business are always equal to the total liabilities plus the equity of the business This is true at any time and applies to each transaction. For this transaction the Accounting equation is shown in the following table.
In this case assuming the goods have not yet sold, one asset (inventory) will have increased and another asset (cash) will have decreased by the same amount.
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About the Author
Chartered accountant Michael Brown is the founder and CEO of Plan Projections. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a BSc from Loughborough University.