A credit purchase travels through five places: the invoice, the purchases journal, two ledger accounts, the trial balance and the financial statements. Each place uses the same RM amount.
This lesson is part of tracing a transaction through the whole accounting cycle.
Worked example: Bunga Supplies invoice
On 6 May, a shop receives an invoice from Bunga Supplies for 40 units at RM45 each, total RM1 800. The shop pays RM1 000 on 28 May and owes the rest at the year end.
Stage 1: invoice and journal. The invoice is the source document. It is entered in the purchases journal for RM1 800.
Stage 2: ledgers. Debit Purchases 1 800 and credit Bunga Supplies 1 800. The payment is debit Bunga Supplies 1 000 and credit Bank 1 000.
| Debit | RM | Credit | RM |
|---|---|---|---|
| 28 May Bank | 1 000 | 6 May Purchases | 1 800 |
| 31 Dec Balance c/d | 800 | ||
| Total | 1 800 | Total | 1 800 |
| 1 Jan Balance b/d | 800 |
The credit side is larger, so the balance goes on the debit side as balance c/d and comes down on the credit side. The shop owes RM800.
Stage 3: trial balance. Purchases 1 800 (debit). Bunga Supplies 800 (credit).
Stage 4: statements. Suppose the shop sold 30 of the 40 units for RM70 each and 10 units remain. Sales are 2 100.
Cost of sales is 1 800 − closing stock (10 × 45 = 450) = 1 350. Gross profit is 2 100 − 1 350 = 750.
On the statement of financial position, closing stock 450 is a current asset and Bunga Supplies 800 is a current liability.
Why do the purchase and the payment land in different places?
The purchase of 1 800 reaches the trading account whether or not it has been paid. The payment of 1 000 affects only Bank and the supplier’s account. It never reaches the profit statements.
| Item | Trading account | Statement of financial position |
|---|---|---|
| Purchases 1 800 | Yes | No |
| Payment 1 000 | No | Bank falls |
| Unpaid 800 | No | Creditor |
| Closing stock 450 | Deducted from purchases | Current asset |
The mistake that costs marks
The slip is to treat the RM800 still owed as an expense, or to put the RM1 000 payment into the trading account as if it were the purchase.
| Step | Wrong | Right |
|---|---|---|
| Purchases in trading account | 1 000 (amount paid) | 1 800 (amount bought) |
| Unpaid amount 800 | Expense | Creditor |
| Gross profit | 2 100 − (1 000 − 450) = 1 550 | 750 |
Purchases are recorded when goods are bought, not when they are paid for.
Check yourself
A shop receives an invoice for RM2 400 of goods from Bunga Supplies and pays RM600 before the year end. Closing stock is RM500, and sales are RM3 000. Find gross profit and the creditor balance.
Answer
Cost of sales = purchases 2 400 − closing stock 500 = 1 900. Gross profit = 3 000 − 1 900 = RM1 100.
Creditor = 2 400 − 600 = RM1 800, shown as a current liability.
What to study next
See how a personal payment changes profit in separating business spending from drawings. Then try the integrated practice.
If you want a teacher to trace your own purchase through, see online one-to-one Accounting tuition.