Pet Supplies Ireland Ltd sold goods to Pet World Ltd for €5,000 cash. Payment was received immediately for these goods. These sales are recorded as cash sales.
The following day, Pet Supplies Ltd Ireland sold goods to Petvet Ltd. They agreed that Petvet Ltd would pay for the goods within 30 days. These sales are recorded as credit sales. The sales day book will be written up and balances will be posted to the relevant nominal, real and personal accounts.
Purchases Purchases is the buying of goods or services.
Purchases can be:
• Cash purchases: goods or services that are paid for immediately. • Credit purchases: goods or services that are paid for at a later date. Credit purchases are recorded in the purchases day book. The balances are then posted to the purchases account and VAT account in the general ledger and the total amount is posted to the personal account in the creditors ledger.
Example
Coffee Cup Ltd bought supplies from TK Supplies Ltd and paid for the goods immediately. These purchases are recorded as cash purchases.
The following week, Coffee Cup Ltd purchased supplies from the Coffee Bean Factory Ltd and agreed to pay for the goods within 30 days. These purchases are recorded as credit purchases. The purchases day book will be written up and balances will be posted to the relevant nominal, real and personal accounts.
ACCOUNTING SOFTWARE Accounts can be prepared using software, such as Microsoft Excel, Big Red Cloud and Sage. The advantages of accounting software is that:
• Accounts can be calculated very quickly.
• Mathematical errors are easily identified and amended, as the software automatically highlights errors.
• It allows the user to present information in graphical form.
