What do you mean by purchases account, Accounting Basics

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Q. What do you eman by Purchases account?

In periodic inventory procedure a merchandising company uses the Purchases account to record the cost of merchandise bought for resale throughout the current accounting period. The Purchases account which is enlarged by debits appears with the income statement accounts in the chart of accounts.

To illustrate entries affecting the Purchases account supposes that Hanlon Retail Food Store made two purchases of merchandise from Smith Wholesale Company. Hanlon buy USD 30000 of merchandise on credit (on account) on May 4 as well as on May 21 purchased USD 20000 of merchandise for cash. The necessary journal entries for Hanlon are

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The buyer deducts purchase returns and purchase discounts and allowances from purchases to arrive at net purchases. The accountant files these items in contra accounts to the Purchases account.


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