In simple words, a purchase and sales entry is the way a business records what it buys and sells. These entries help to track goods, money, and profit. Every company needs to record these details properly. A purchase and sales entry is used to show when you buy something and when you sell something. This entry helps in knowing how much stock is available and how much cash or credit is involved. In business, keeping a proper record of purchases and sales helps avoid mistakes. It also gives a clear view of how the business is doing. With correct entries, you can plan better and avoid confusion. These entries form the base of all business reports. Entries are done using proper formats and software like Tally. These are part of purchase and sales accounting and must follow the rules. You must use the correct purchase entry format and sales entry format. Recording entries builds trust and avoids loss. When entries are right, your business stays strong. Proper records also help you make plans.
What is Purchase?
A purchase is when a business buys something to use or sell. The business gives money or agrees to pay later. Goods bought for resale or for use in business are called purchases. These are important to run daily operations. When you buy something, you need to record it. That becomes a purchase entry. It helps to track what you own, what you owe, and what you spend.
Purchase entries show the flow of goods into the business. They also tell you about your payments to suppliers. They form the base for tracking stock levels and planning new purchases.
Types of Purchase
Recording purchases the right way avoids wrong stock values. It also helps match purchase amounts with sales later. These steps help in business planning and decision-making. There are two types of purchases:
- Cash Purchase – The business pays money immediately. This means you give money when you buy. You don’t owe anything after the deal.
- Credit Purchase – The business agrees to pay later. This means you take goods but pay after some time. It creates a payable in your books.
For example, a mobile shop buys 50 phones from a wholesaler. The total amount, rate per phone, and other details must be written down. This is the journal entry for purchase. Businesses use this to track inventory, payments, and expenses. This record helps in keeping things organized. It is also useful for audits and tax work. In simple words, every item you buy must be written in your accounts. That is called a purchase entry.
Purchase Entry Format
The format makes everything clear. It also helps when you check your books later. This entry is written in the purchase ledger, which stores all purchase records. It is also added to purchase and sales journal entries, which show both sides of the business. Keeping these entries correct and updated is very important. The purchase entry format has the following:
- Date: The day when the purchase took place. This helps in monthly reports.
- Supplier name: The party from whom you bought the goods. This helps track payments.
- Item name: What you bought. It can be anything like books or chairs.
- Quantity and rate: Number of items and price per item. This helps in stock control
- Total price: Full value of the purchase. It must match your invoice.
- Invoice number: The bill number given by the supplier. Useful for checking records.
- Payment terms: Whether it is cash or credit. This tells when payment is due.
What is Sales?
A sale is when a business gives goods or services to someone and gets money. A business earns income through sales. When a product is sold, it must be recorded in the books. That becomes a sales entry. It helps to know how much the business earned and what stock was reduced. Sales tell you how your business is growing. It shows what items customers like most. It also affects your total profit and tax amount.
Types of Sales
Sales entries also help you identify customer buying patterns. They make returns and exchanges easier. They keep your accounts neat and up to date. Sales are of two kinds:
- Cash Sales – Payment is received immediately. This adds money to your cash account. It means no waiting for payment.
- Credit Sales – Payment is received after some time. You sell goods but get money later. This adds to customer receivables.
For example, if a shop sells 20 bags for Rs. 500 each, the total sales are Rs. 10,000. This transaction must be written in the account books. It is important to record sales on time. Sales affect your profit, your stock level, and your tax. If you don’t record sales, your income records will be wrong. This can lead to big problems. That is why you must record every sale.
Sales Entry Format
The Sales entry is added to the sales ledger, which shows all the sales you made. This is also used in purchase and sales journal entries. Keeping proper records helps in better planning and checking. It shows what products sell well and what needs improvement. A proper sales record helps during GST returns, tax audits, and when calculating profit. Always write sales entries in full detail. A sales entry format includes:
- Date of sale – The day the product was sold. Helps track daily sales.
- Customer name – The buyer’s name. Useful for credit sales.
- Goods sold – The item given to the customer. Needed for stock updates.
- Quantity and rate – Number and price per unit. Helps in billing.
- Total amount – Full sale value. Matches with the invoice.
- Invoice number – Bill number. Helps in reference.
- Mode of payment – Cash or credit. Shows how money was received.
How to Make a Purchase and Sales Entry in Tally?
Tally is one of the most used accounting software programs in India. It helps you to record transactions like purchases and sales quickly. Using Tally saves time and reduces errors. It also helps during audits and GST filing. Businesses of all sizes use it. You can enter both purchase and sales in the tally. Tally works well for shops, traders, and companies. It gives fast results and has simple options. You can also set tax rules and item lists in it.
Tally and Its Use in Accounting
Tally helps in keeping your accounts clear. It is easy to use. You just need to follow the steps. It shows automatic totals. It updates ledgers on its own. You can print reports at any time. Tally links each entry to the right ledger. You can also add tax values and stock items. It makes daily accounting very simple. Tally also has GST and bank entry features. It helps with profit and loss reports. You can even use Tally to file returns directly.
Steps to Make Purchase Entry in Tally
The entry will go to the purchase ledger. It shows your purchase history. It also helps to track how much stock you have. The entry becomes part of the double entry for purchase and sales.
Correct entry in Tally avoids mismatch in ledgers. It also helps generate reports instantly. It saves time and gives accurate figures. To make a purchase entry in the tally, follow these steps:
- Open Tally. – Start the program and open your company. You can select from the list.
- Select Accounting Vouchers. – Choose this option to begin entries. It shows all types of vouchers.
- Press F9 for purchase. – This shortcut opens the purchase screen. It’s faster than clicking.
- Choose the supplier name. – Select from the ledger. You must have created this before.
- Enter the date and invoice number. – These help to keep records in order. Make sure to match the bill.
- Select the item. – Pick from your item list. Add correct details.
- Add quantity and rate. – Mention how many and at what price. It calculates the value.
- Tally will calculate the total. – You can check it on screen. It adds all items.
- Save the entry. – Press enter or click yes. The entry is now recorded.
Steps to Make Sales Entry in Tally
The entry will be added to your sales ledger. It keeps all records of sales. This is useful for GST and reporting. Tally also prepares reports based on these entries. You can check daily or monthly totals. These steps are easy and must be followed daily.
Tally gives alerts if something is missing. You can view past entries, too. It reduces errors and helps with monthly closings.. To do a sales entry in tally, follow these steps:
- Go to Accounting Vouchers. – Open the same area where you enter purchase.
- Press F8 for sales. – This is the shortcut to enter sales. It opens the sales screen.
- Choose the customer name. – Pick from your ledger list. Create if not there.
- Enter the date and invoice number. – These must be correct. They help in record matching.
- Add item, quantity, and rate. – Fill in what you sold. Also, give quantity and price.
- Check the total. – Tally adds up the values. You can verify before saving.
- Save the entry. – Once checked, save it. The sale is now recorded.
Journal Entries for Purchase and Sales with Examples
Journal entries are very important in accounting. They help you keep a full record of all transactions. Without journal entries, accounts will be incomplete. You must write them on time. Journal entries show what comes in and what goes out. They also show the double effect of each transaction.
Journal entries also make books balanced. They help in audit checks. They are the first step of accounting.
Journal Entry for Purchase
It is written in your purchase ledger. It also helps in checking who you have to pay. If this is missed, accounts will not match. This entry updates your liability. It also helps check purchase trends. You can use this to analyze supplier performance. This becomes part of the purchase and sales journal entries.
If you buy goods, the journal entry for purchase is:
| Purchase A/c Dr. To Supplier A/c |
If you buy using cash:
| Purchase A/c Dr. To Cash A/c |
Example: You buy goods worth Rs. 5,000 from Manoj on credit. Entry:
Purchase A/c Dr. 5,000
To Manoj A/c 5,000
Journal Entry for Sales
The entry goes in the sales ledger. You can use it to check your income. You can match it with stock and tax. It is useful for balance sheets and P&L accounts. These journal entries must be updated daily. Sales entries affect your cash flow. They help track customer balances. They also prepare you for audit.
If you sell goods, the journal entry for sales is:
| Customer A/c Dr. To Sales A/c |
If it is a cash sale:
| Cash A/c Dr. To Sales A/c |
Example: You sell goods worth Rs. 7,000 in cash. Entry:
Cash A/c Dr. 7,000
To Sales A/c 7,000
Process To Record Purchase and Sales Entry
Recording entries is very important. Every business must do it. It helps you know your stock, cash, and expenses. You can do it manually or using software. But every detail must be correct. One small mistake can affect your full balance sheet.
Recording helps in future planning. It builds a strong system. It also makes audits easy.
Before recording, check the invoice. Write down the details. Match it with stock. Know if it is cash or credit. Decide which ledger to update. Write entries neatly. Use correct numbers. Check GST if needed. Always cross-check totals.
Understanding the process prevents errors. It also saves time. It keeps your books clean.
Manual Entry Process
If you do it without software, use purchase and sales books. Write every detail. Use standard format. Total everything correctly. Sign and store it safely. Here is a purchase entry format:
| Date | Supplier | Items | Qty | Rate | Amount | Payment Mode |
| 01-Apr | Ram & Co. | Pen | 100 | 5 | 500 | Credit |
Date is when the purchase happened. Supplier is from whom you bought. Items show what you bought.
| Date | Customer | Items | Qty | Rate | Amount | Payment Mode |
| 01-Apr | Mohan | Pen | 50 | 10 | 500 | Cash |
The date is when you made the sale. The customer is who bought it. Items are what you sold.
These formats help in record keeping. They are used during audits. You can store them in files. Always write with care. Do not miss any details.
Manual formats work well for small firms. They also help in cross-checking with software. They are useful backups.
Recording in Tally
Tally helps you do this fast. You just select voucher type, add items, and save. The software handles totals and taxes. You just check and enter the correct values. It shows double entry for purchases and sales on its own. Reports can be viewed later. Tally stores entries safely. You can also take backup. It helps in GST returns. Tally also links entries to stock. It reduces manual work. Big and small companies use it.
Tally gives you GST reports, too. You can track items fast. You can see stock levels anytime.
Tips for Better Recording
The steps make your purchase and sales accounting strong. They help you to grow your business. You can track income and cost easily, plan better, and avoid losses. Good recording builds trust and clarity. Tips save time and increase accuracy. They make reports more reliable. They also train your team to work better.
- Always update entries daily: This keeps records fresh and helps avoid backlogs. It makes checking easier.
- Keep invoices safe: These help during returns and tax checks. You also need them during audits.
- Cross-check totals: Totals must match the bill and entry. Wrong totals cause mismatches.
- Write the correct ledger name: This helps in proper tracking. Wrong ledgers create confusion.
- Use proper format: Formats keep things neat. They help others understand the record.
Relevance to ACCA Syllabus
Since financial reporting is a core part of the ACCA syllabus, the knowledge acquired allows for the preparation and interpretation of sophisticated financial statements under international accounting standards. Mastery of purchase and sales entries is foundational to understanding double-entry bookkeeping, preparing journals, and producing accurate financial reports, which is vital for both initial and consolidated financial statements.
Purchase and Sales Entry ACCA Questions
Q1: What is the double entry for recording a credit sale of $5,000, excluding VAT?
A) Dr. Accounts Payable, Cr Revenue
B) Dr Accounts Receivable, Cr Sales
C) Dr Sales, Cr Accounts Receivable
D) Dr Revenue, Cr Cash
Ans: B) Dr Accounts Receivable, Cr Sales
Q2: Which document is used to verify goods received before a purchase is recorded?
A) Sales Invoice
B) Goods Dispatch Note
C) Purchase Order
D) Goods Received Note
Ans: D) Goods Received Note
Q3: In accrual accounting, when is revenue from a sale recognized?
A) When cash is received
B) When the sale is recorded
C) When performance obligation is satisfied
D) When the order is placed
Ans: C) When performance obligation is satisfied
Q4: If a company records a purchase of inventory on credit, what is the correct entry?
A) Dr Inventory, Cr Accounts Receivable
B) Dr Accounts Payable, Cr Inventory
C) Dr Inventory, Cr Accounts Payable
D) Dr Purchases, Cr Sales
Ans: C) Dr Inventory, Cr Accounts Payable
Q5: Which of the following best represents a sales return?
A) Dr Sales Return, Cr Bank
B) Dr Revenue, Cr Cost of Sales
C) Dr Sales Return, Cr Accounts Receivable
D) Dr Purchases, Cr Sales Return
Ans: C) Dr Sales Return, Cr Accounts Receivable
Relevance to US CMA Syllabus
In the US CMA syllabus, purchase and sales entries are integral to topics like financial reporting, cost management, and internal controls. CMAs must understand how to accurately record and track business transactions to support decision-making, budgeting, and compliance with GAAP. Understanding these entries supports broader knowledge areas such as revenue recognition, inventory valuation, and cost analysis.
Purchase and Sales Entry US CMA Questions
Q1: What is typically recorded when inventory is purchased on credit?
A) Dr Cost of Goods Sold, Cr Inventory
B) Dr Inventory, Cr Accounts Payable
C) Dr Purchases, Cr Revenue
D) Dr Inventory, Cr Cash
Ans: B) Dr Inventory, Cr Accounts Payable
Q2: Which of the following statements directly affects a sales entry?
A) Statement of Cash Flows
B) Statement of Retained Earnings
C) Income Statement and Balance Sheet
D) Only the Balance Sheet
Ans: C) Income Statement and Balance Sheet
Q3: Which principle guides revenue recognition in accrual accounting?
A) Matching Principle
B) Conservatism Principle
C) Realization Principle
D) Cost Principle
Ans: C) Realization Principle
Q4: If goods are sold for $3,000 and cost $1,800, what is the correct entry?
A) Dr Sales $3,000, Cr COGS $1,800
B) Dr Accounts Receivable $3,000, Cr Sales $3,000; Dr COGS $1,800, Cr Inventory $1,800
C) Dr Inventory $3,000, Cr Sales $1,800
D) Dr Cash $3,000, Cr COGS $1,800
Ans: B) Dr Accounts Receivable $3,000, Cr Sales $3,000; Dr COGS $1,800, Cr Inventory $1,800
Q5: Purchase discounts taken on early payment are recorded as:
A) Decrease in Inventory
B) Sales Revenue
C) Finance Income
D) Reduction in Cost of Goods Sold
Ans: D) Reduction in Cost of Goods Sold
Relevance to US CPA Syllabus
For the US CPA exam, journal entries for purchases and sales are core to the FAR (Financial Accounting and Reporting) section. Candidates must know how to handle entries according to US GAAP, including revenue recognition, inventory accounting, and sales/purchase discounts or returns. This foundational knowledge is essential for preparing accurate and complete financial statements.
Purchase and Sales Entry US CPA Questions
Q1: Under GAAP, when should revenue from a sale be recognized?
A) When an invoice is issued
B) When payment is received
C) When risks and rewards are transferred, and collection is probable
D) When the customer signs the order
Ans: C) When risks and rewards are transferred, and collection is probable
Q2: What is the entry when inventory is sold for cash at a profit?
A) Dr Sales, Cr Inventory
B) Dr Inventory, Cr COGS
C) Dr Cash, Cr Revenue; Dr COGS, Cr Inventory
D) Dr Revenue, Cr Cash
Ans: C) Dr Cash, Cr Revenue; Dr COGS, Cr Inventory
Q3: What is the treatment of freight-in charges on purchases?
A) Expensed immediately
B) Added to Inventory
C) Deducted from Sales
D) Classified under Other Expenses
Ans: B) Added to Inventory
Q4: What happens when a company returns inventory to the supplier?
A) Dr Accounts Payable, Cr Inventory
B) Dr Sales, Cr Accounts Receivable
C) Dr Purchases, Cr Inventory
D) Dr Inventory, Cr Accounts Payable
Ans: A) Dr Accounts Payable, Cr Inventory
Q5: Which document is essential for initiating a purchase entry?
A) Purchase Requisition
B) Sales Invoice
C) Delivery Note
D) Debit Memo
Ans: A) Purchase Requisition
Relevance to CFA Syllabus
While the CFA curriculum is investment-oriented, a clear grasp of purchase and sales entries is crucial in understanding financial statements. These transactions impact income statements and balance sheets, which CFA candidates analyze extensively in financial reporting and analysis. Analysts must interpret how these entries affect profitability, working capital, and valuation.
Purchase and Sales Entry CFA Questions
Q1: Purchase of inventory increases which of the following?
A) Expenses
B) Assets
C) Liabilities
D) Equity
Ans: B) Assets
Q2: How does a sale of goods affect financial statements?
A) Increases revenue and assets
B) Decreases liabilities and expenses
C) Increases expenses and equity
D) No effect
Ans: A) Increases revenue and assets
Q3: Which metric is directly influenced by sales revenue?
A) Current Ratio
B) Return on Equity
C) Debt to Equity Ratio
D) Inventory Turnover
Ans: B) Return on Equity
Q4: What does a high accounts receivable balance indicate?
A) Rapid collection
B) Slow collection from sales
C) High inventory levels
D) Low credit sales
Ans: B) Slow collection from sales
Q5: In financial analysis, sales returns would:
A) Inflate revenue
B) Increase gross profit
C) Reduce net sales
D) Increase net income
Ans: C) Reduce net sales
