Recording financial transactions is a daily task in any business. One of the most common is buying goods on credit. We call this a credit purchase journal entry. This entry helps track items bought now but paid for later. A credit purchase journal entry records goods bought for business on credit. It means the business did not pay cash at the time of purchase. Instead, it agrees to pay the supplier later. This journal entry shows an increase in purchases (an expense) and a rise in liability (a payable to the supplier).
What is Credit Purchase in Accounting?
A credit purchase is when a business buys goods from a supplier but does not pay immediately. The supplier allows the business to pay after a set period. This is usually 15, 30, or 60 days.In daily business, many firms buy goods from suppliers. When they delay payment, it is called a credit purchase. This keeps the cash flow free and helps the business grow faster. Instead of blocking cash, businesses use the goods first and pay later. This is why this method is very common in trading, manufacturing, and wholesale industries.
When a credit purchase happens, the buyer becomes a debtor to the seller. In accounting, this becomes a liability for the buyer. The business will have to pay the amount in the future. At the same time, the goods come into the business. So, purchases increase as an expense.This is why credit purchase is recorded in the journal through a credit purchase journal entry. This entry affects two accounts — Purchases Account and Creditor’s Account.
Rules of Credit Purchase Journal Entry
Before writing any journal entry, we must follow the Golden Rules of Accounting. These rules help us decide which account to debit and which one to credit.
In a credit purchase, two accounts are involved:
- Purchase Account – This account increases because goods are coming into the business.
- Creditor (Supplier) Account – This account also increases because the business now owes money.
Journal Entry Format
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
| 21-Apr-2025 | Purchases A/c Dr. To Ram & Co. A/c(Being goods purchased from Ram & Co. on credit) | 50,000 | 50,000 |
Here, the purchase account is debited as goods are bought. Ram & Co. is credited because they gave the goods on credit.
When Do We Use Credit Purchase Journal Entry?
Businesses use this entry whenever they buy goods (not services) and do not pay immediately. This is a regular transaction in most businesses.
- Buying goods in bulk from a wholesaler
- Purchasing raw materials on account
- Replacing inventory and paying later
- Getting stock for resale but paying in 30 days
Examples of Credit Purchase Journal Entry
Let us understand with more practical examples. We will look at different amounts and different suppliers.
Example 1:
On 1st March 2025, XYZ Ltd. bought goods worth ₹25,000 from ABC Traders on credit.
Journal Entry:
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
| 01-Mar-2025 | Purchases A/c Dr. To ABC Traders A/c (Being goods purchased from ABC Traders on credit) | 25,000 | 25,000 |
Example 2:
On 15th April 2025, Kumar Enterprises purchased raw materials worth ₹75,000 on 30-day credit from MNO Pvt Ltd.
Journal Entry:
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
| 15-Apr-2025 | Purchases A/c Dr. To MNO Pvt Ltd A/c (Being raw materials purchased from MNO Pvt Ltd on 30-day credit) | 75,000 | 75,000 |
Example 3:
On 21st April 2025, Shyam & Sons bought machinery for resale from TechTools Pvt Ltd. on credit worth ₹1,00,000.
Journal Entry:
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
| 21-Apr-2025 | Purchases A/c Dr. To TechTools Pvt Ltd A/c (Being trading goods purchased from TechTools Pvt Ltd on credit) | 1,00,000 | 1,00,,000 |
These entries help track credit and purchases accurately. These are posted later to the ledger accounts. This maintains balance in the books.
Effects of Credit Purchase Journal Entry on Financial Statements
A credit purchase does not affect cash or bank accounts immediately. It impacts expenses and liabilities. This is very important when preparing financial reports.
Impact on Different Accounts:
- Purchases A/c: This account increases. It appears on the debit side of the Trading Account. It adds to the cost of goods sold.
- Creditors A/c: This account increases. It is a liability and shows on the Balance Sheet under Current Liabilities.
Over time, when the payment is made, the creditor’s account reduces. But till then, the liability stays. So, the business must manage this carefully. If many purchases are on credit, it must ensure enough cash to pay them.
Credit purchases also affect the working capital. It delays cash outflow, which improves liquidity in the short term.
Relevance to ACCA Syllabus
Credit purchase journal entries fall under Financial Accounting (FA) and Financial Reporting (FR) papers. ACCA students must understand how to record and classify business transactions like purchases on credit. These entries directly affect the statement of financial position and profit and loss account. Accurate entries also feed into more advanced topics like working capital management, trial balance preparation, and consolidated financial statements.
Credit Purchase Journal Entry ACCA Questions
Q1: What is the correct journal entry when goods are purchased on credit from a supplier?
A) Purchases A/c Dr., To Bank A/c
B) Purchases A/c Dr., To Supplier A/c
C) Supplier A/c Dr., To Purchases A/c
D) Purchases A/c Dr., To Cash A/c
Ans: B) Purchases A/c Dr., To Supplier A/c
Q2: In which part of the financial statement will a credit purchase affect the most?
A) Non-current assets
B) Current liabilities
C) Share capital
D) Contingent liabilities
Ans: B) Current liabilities
Q3: When goods are bought on credit, which account is credited?
A) Purchases Account
B) Capital Account
C) Supplier’s Account
D) Cash Account
Ans: C) Supplier’s Account
Q4: What happens to the business liability when a credit purchase is made?
A) Decreases
B) Remains unchanged
C) Increases
D) Gets transferred
Ans: C) Increases
Q5: Which of the following entries is used in case of a credit purchase return?
A) Returns Outward A/c Dr., To Supplier A/c
B) Purchases A/c Dr., To Returns Inward A/c
C) Supplier A/c Dr., To Returns Outward A/c
D) Cash A/c Dr., To Purchases A/c
Ans: C) Supplier A/c Dr., To Returns Outward A/c
Relevance to US CMA Syllabus
The US CMA syllabus covers external financial reporting, and working capital management. Understanding credit purchase journal entries helps in managing accounts payable, cash flows, and cost control strategies. These entries also influence the calculation of key ratios like the current ratio and quick ratio, which are tested in Part 1 of the CMA exam.
Credit Purchase Journal Entry US CMA Questions
Q1: Which of the following increases when a company records a credit purchase?
A) Cash balance
B) Equity
C) Accounts Payable
D) Retained Earnings
Ans: C) Accounts Payable
Q2: How does a credit purchase affect the financial position of a business?
A) It reduces equity
B) It increases assets and liabilities
C) It decreases cash
D) It increases only expenses
Ans: B) It increases assets and liabilities
Q3: What financial ratio will be directly affected by multiple credit purchases?
A) Return on Equity
B) Gross Profit Margin
C) Current Ratio
D) Dividend Yield
Ans: C) Current Ratio
Q4: Credit purchase of inventory impacts which of the following most directly?
A) Cost of Goods Sold
B) Financing activities
C) Net Profit
D) Depreciation
Ans: A) Cost of Goods Sold
Q5: What is the main benefit of credit purchases for working capital?
A) Decrease in current assets
B) Reduced cash flow
C) Increase in retained earnings
D) Delayed cash outflow
Ans: D) Delayed cash outflow
Relevance to US CPA Syllabus
In US CPA, particularly in the FAR (Financial Accounting and Reporting) section, students must know how to record and analyze financial transactions. Journal entries like those for credit purchases help in forming complete ledger balances, support audit trails, and are crucial for preparing accurate financial statements under GAAP.
Credit Purchase Journal Entry US CPA Questions
Q1: Under US GAAP, which account is credited when a purchase is made on credit?
A) Cash
B) Accounts Payable
C) Accounts Receivable
D) Sales
Ans: B) Accounts Payable
Q2: What is the double-entry effect of a credit purchase?
A) Debit purchases, credit sales
B) Debit sales, credit accounts receivable
C) Debit purchases, credit accounts payable
D) Debit inventory, credit equity
Ans: C) Debit purchases, credit accounts payable
Q3: Where are credit purchases recorded first in the accounting cycle?
A) Ledger
B) Trial Balance
C) Balance Sheet
D) Journal
Ans: D) Journal
Q4: How does a credit purchase reflect in the balance sheet?
A) Decreases inventory
B) Increases assets and liabilities
C) Increases revenue
D) No effect
Ans: B) Increases assets and liabilities
Q5: Which of the following internal controls best tracks credit purchases?
A) Budget variance reports
B) Bank reconciliation
C) Purchase order system
D) Depreciation schedule
Ans: C) Purchase order system
Relevance to CFA Syllabus
In the CFA Level 1 and 2 curriculum, the topic links to financial reporting and analysis. Candidates must analyze how credit purchases affect a company’s liquidity, leverage, and working capital. Journal entries are not tested in-depth, but their effects on ratios and financial statements are highly relevant.
Credit Purchase Journal Entry CFA Questions
Q1: When a firm records a credit purchase, which ratio is most impacted?
A) Debt-to-equity ratio
B) Inventory turnover
C) Quick ratio
D) Accounts payable turnover
Ans: D) Accounts payable turnover
Q2: In ratio analysis, credit purchases will most likely affect:
A) Net Profit Margin
B) Return on Assets
C) Working Capital
D) EBIT Margin
Ans: C) Working Capital
Q3: Which is a financial impact of large credit purchases?
A) Higher revenue
B) Lower operating cash flow
C) Increased leverage
D) Immediate reduction in liabilities
Ans: C) Increased leverage
Q4: If a firm delays payments to suppliers, it increases:
A) Operating expenses
B) Cash flow from operations
C) Interest expense
D) Depreciation expense
Ans: B) Cash flow from operations
Q5: Where does a credit purchase transaction appear in financial reporting?
A) Statement of Cash Flows (financing)
B) Income Statement under other income
C) Balance Sheet and Inventory Note
D) Notes to Shareholders’ Equity
Ans: C) Balance Sheet and Inventory Note
