What is a Purchase Ledger?

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Example of Purchase Ledger

For Example, the following is the purchase journal of the Company for the period of July-2019.

Prepare the purchase ledger using the purchase journal for the month as given below:

Solution

From the purchase journal, entries will be posted on the purchase ledger having the accounts of the different suppliers of the company, which are as follows:

Advantages

  • It helps monitor all the purchases made by the company during the period and ensure that sufficient purchases are made. If there are fewer purchases than required, it will hamper its production process, and on the other side, if there are more purchases than required, it will block the company’s money, which could be used for other purposes.This shows the balances due to the creditors from whom the purchases have been made on credit. This helps the company know the liability at the particular point of time it owes to its suppliers.The purchase ledger has a list of all the purchases. Thus it can give a list of the frequent suppliers and the supplies that involve a considerable sum of money.In case the company wants to conduct the information about its purchases. It can use the purchase ledger as it contains different information like date of purchase, supplier name, invoice number, purchase order number, amount, tax amount, etc.

Disadvantages

  • In case of an error by a person in recording the purchases in the company’s purchase ledger, It can, at the same time, lead to overstatement or understatement in the balances of the accounts that use such ledger as its base.It requires the time and involvement of the person responsible for recording the transactions in this ledger.

Important Points

  • It has information about individual accounts of different business suppliers from whom it has made purchases during the period with a credit or without credit.It helps monitor all the purchases made by the company during the period and ensure that sufficient purchases are made. If there are fewer purchases than required, it will hamper its production process, and on the other side, if there are more purchases than required, it will block the company’s money, which could be used for other purposes.The balances of this company’s ledger are aggregated periodically, which are then posted into the purchase ledger control accountControl AccountA control account is a general ledger account created for the purpose of recording the bulk transaction with the same nature and then summarizing the balance. This is transferred from the subsidiary account or the main account and needs to be shown in the financials.read more. So, it is the summary of the ledger having no detailed transactions.Data fields might include different information wherever applicable. Like date of purchases, name of the supplier or the related code, invoice number of the invoice given by the supplier, purchase order number, code used by the company for identifying the purchases, the amount paid or payable to the supplier, tax paid which applied to that purchases, the status of the payment, etc.

Conclusion

The purchase ledger records the company’s transactions involving the suppliers’ purchases of the goods and services. It contains detailed information on the purchases made by the company, which helps in the analysis of the different aspects. The balances are aggregated periodically, then posted into the purchase ledger control account.

This article has guided what a Purchase Ledger and its meaning is. Here we discuss the journal entries of the purchase ledger and the example, advantages, and disadvantages. You can learn more about excel modeling from the following articles –

  • Subledger DefinitionExamples of Cash BookExamples of Ledger AccountGeneral Journal vs General LedgerJournal Voucher