The total of the Purchases Journal is transferred to the (A) Credit side of the Purchases Account (B) Debit side of the Purchases Day Book (C) Credit side of the Purchases Book (D) Debit side of the Purchases Account.
The correct answer and explanation is:
The correct answer is (D) Debit side of the Purchases Account.
Explanation:
In accounting, journals are used to record transactions before they are posted to the ledger. The Purchases Journal (or Purchases Day Book) is specifically used to record all credit purchases made by a business, i.e., purchases of goods and services on credit. The total of this journal represents the total credit purchases during a specific period, such as a day or a month.
To properly maintain accounting records, each journal entry is transferred or posted to the appropriate ledger account. The Purchases Account is a general ledger account that tracks the total amount of goods purchased by a business during a period. Since purchases are typically treated as an expense (increases in assets), they are always posted on the debit side of the Purchases Account. This is consistent with the basic accounting rule that for increases in assets (like purchases), the appropriate side to post the transaction is the debit side.
Let’s break this down:
- Purchases Journal: It records all the purchases made on credit. The total of these purchases (sum of the entries recorded throughout the period) needs to be transferred to the Purchases Account in the general ledger.
- Debit Side of the Purchases Account: Since the Purchases Account is a type of expense or asset account, and increases in assets or expenses are recorded on the debit side, the total amount from the Purchases Journal is posted to the debit side of the Purchases Account.
- Why Not the Credit Side? The credit side is used for decreases in assets or liabilities. Posting the total of the Purchases Journal to the credit side would be incorrect because it would indicate a decrease in purchases, which is not the case.
- Other Options:
- (A) Credit side of the Purchases Account: Incorrect, as discussed.
- (B) Debit side of the Purchases Day Book: Not applicable. The Purchases Day Book is used for recording, not for posting.
- (C) Credit side of the Purchases Book: The term “Purchases Book” isn’t commonly used, and this answer is not relevant.
In conclusion, the total from the Purchases Journal is transferred to the debit side of the Purchases Account to accurately reflect the increase in the company’s purchases on credit.