Purchase Book vs. Purchase Account: What's the Difference?
Edited by Aimie Carlson || By Harlon Moss || Published on November 24, 2023
A purchase book records individual credit purchase transactions, while a purchase account is a ledger account summarizing total purchases.
Key Differences
A purchase book is essentially a subsidiary book or a special purpose book where credit purchases of goods are recorded. This means when a business buys goods on credit, the transaction finds its mention in the purchase book. On the other hand, a purchase account acts as a summary of all such transactions. It is a ledger account that aggregates the total value of all purchases, both cash and credit, made during a specific period.
The nature of entries differs between a purchase book and a purchase account. The purchase book contains detailed entries of each individual credit purchase transaction, showcasing information like date, seller's name, invoice number, and amount. Contrarily, a purchase account, being a part of the ledger, shows summarized entries, typically representing total purchases made.
It's also essential to recognize the frequency of updates. The purchase book is updated more frequently, as every credit purchase transaction is recorded as and when it occurs. In contrast, a purchase account is updated periodically, generally at the end of an accounting period, to reflect the total purchases.
Moreover, while both tools are instrumental in accounting, their primary purposes vary. The purchase book serves as a chronological record of credit purchase transactions, facilitating a detailed audit trail. The purchase account, however, assists in deducing the overall performance of a business by showcasing total expenditures on purchases during a period.
Comparison Chart
Nature
Subsidiary book recording individual credit purchases.
Ledger account summarizing total purchases.
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Entries
Detailed with each credit purchase transaction.
Summarized, reflecting total purchases.
Update Frequency
As and when a credit purchase occurs.
Periodically, typically at the end of an accounting period.
Purpose
Chronological record for audit trail.
Performance assessment via total purchase expenditure.
Transaction Type
Only credit purchases.
Both cash and credit purchases.
Purchase Book and Purchase Account Definitions
Purchase Book
The purchase book provides a chronological record of credit purchase transactions.
The auditor reviewed the purchase book to understand the purchase pattern.
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Purchase Account
It assists in evaluating the business's purchase performance over time.
By analyzing the purchase account, the manager discerned a seasonal purchase pattern.
Purchase Book
A purchase book is a subsidiary book recording credit purchases.
Every credit purchase was meticulously entered into the purchase book.
Purchase Account
Periodically, entries from the purchase book are transferred to the purchase account.
Monthly, the accountant transferred the total from the purchase book to the purchase account.
Purchase Book
A purchase book aids in maintaining a transparent audit trail.
The transparent purchase book made it easy to identify discrepancies.
Purchase Account
A purchase account is a ledger account reflecting total purchases.
At the end of the year, the purchase account showed a significant increase in expenditures.
Purchase Book
Only credit purchases of goods (not assets) are recorded in the purchase book.
The office equipment bought on credit was not entered in the purchase book as it was an asset.
Purchase Account
The purchase account summarizes both cash and credit purchases.
Both the immediate cash purchases and the credit ones were included in the purchase account.
Purchase Book
It includes details like seller's name, invoice number, and amount.
For clarity, the date and invoice number were always mentioned in the purchase book.
Purchase Account
The purchase account is crucial for preparing final accounts.
While creating the profit and loss statement, data from the purchase account was indispensable.
FAQs
Is the purchase book used for cash purchases?
No, the purchase book is specifically for recording credit purchases of goods.
How does the purchase book aid auditors?
The purchase book offers a chronological record of credit purchases, enabling a transparent audit trail.
Do businesses always maintain both a purchase book and purchase account?
While beneficial, not all businesses might maintain both; it often depends on the business's size and transaction volume.
What transactions are recorded in the purchase book?
The purchase book records individual credit purchases of goods, not assets.
How frequently is the purchase account updated?
The purchase account is updated periodically, typically at the end of an accounting period.
Does the purchase account only summarize credit purchases?
No, the purchase account summarizes both cash and credit purchases.
Why is the purchase book referred to as a subsidiary book?
Because it's a special purpose book recording specific types of transactions, in this case, credit purchases of goods.
How does the purchase account help in performance assessment?
By summarizing total expenditures on purchases, the purchase account provides insights into a business's purchasing patterns and performance.
Why might a business prefer to separate cash and credit purchases in their records?
Separating allows for clearer financial tracking, aids in cash flow management, and provides a detailed audit trail for credit transactions.
Can assets purchased on credit be recorded in the purchase book?
No, the purchase book is strictly for recording credit purchases of goods, not assets.
Can purchase returns be recorded in the purchase book?
No, purchase returns have a separate subsidiary book known as the "purchase returns book."
Do all credit purchases go into the purchase book immediately?
Yes, as and when a credit purchase of goods occurs, it's recorded in the purchase book.
Can one determine the total credit purchases from the purchase account?
Not directly, as the purchase account aggregates both cash and credit purchases. To isolate credit purchases, one would refer to the purchase book.
Why is the purchase account crucial for businesses?
The purchase account provides an aggregate view of a business's purchasing activity, aiding in financial analysis and decision-making.
Are services purchased on credit recorded in the purchase book?
No, the purchase book is typically for tangible goods purchased on credit, not services.
How does one transfer data from the purchase book to the purchase account?
Periodically, the total of credit purchases from the purchase book is transferred to the debit side of the purchase account.
What role does the purchase account play in final accounts?
The purchase account provides data on total purchases, crucial for preparing the profit and loss statement.
Are discounts availed recorded in the purchase book?
Typically, the purchase book records the net amount after accounting for any discounts availed.
Is the purchase account a part of the general ledger?
Yes, the purchase account is a ledger account, making it part of the general ledger.
Can a purchase book have debit entries?
No, the purchase book only contains credit entries for credit purchases of goods.
About Author
Written by
Harlon MossHarlon is a seasoned quality moderator and accomplished content writer for Difference Wiki. An alumnus of the prestigious University of California, he earned his degree in Computer Science. Leveraging his academic background, Harlon brings a meticulous and informed perspective to his work, ensuring content accuracy and excellence.
Edited by
Aimie CarlsonAimie Carlson, holding a master's degree in English literature, is a fervent English language enthusiast. She lends her writing talents to Difference Wiki, a prominent website that specializes in comparisons, offering readers insightful analyses that both captivate and inform.
