Like the Sales Ledger, the Purchases Ledger is a type of Subsidiary Ledger or Memorandum Account. The Purchases Ledger records the same information to the Purchases Ledger Control Account in the General Ledger but splits that information between different suppliers.
The Purchases Ledger Control Account
The Purchases Ledger Control Account (“PLCA”) is a ledger accounts in the General Ledger and records:
- Any transaction that affects the amount of money owed by the business to its suppliers (e.g. purchases made on credit, credit notes received from suppliers, payments made to suppliers and so on); and
- The total amount the business owes to its suppliers
The PLCA does not provide details of how much is owed to each supplier – it just tells us how much is owed in total to all suppliers. As a result it is not much use when a business wants to know how much to pay a particular supplier.
The Purchases Ledger
The Purchases Ledger is a separate book to the General Ledger and is used to record all the transactions that affect the amount owed by the business to its suppliers and thereby calculate the amounts owed to each supplier. The Purchases Ledger contains ledger accounts for each supplier that deals with the business on credit terms (i.e. it buys goods and/or services from suppliers and pays for them at a later date). This enables the business to calculate the amount it owes to each supplier separately.
Layout of the Purchases Ledger
Like the General Ledger and the Sales Ledger, the Purchases Ledger consists of numerous ledger accounts but in this book the ledger accounts are referred to as supplier accounts and are named after the different suppliers who provide goods or services to the business on credit terms.
The supplier accounts in the Purchasers Ledger are laid out in the same manner as those in the General Ledger and Sales Ledger, so if they contain T-accounts, so will the Purchases Ledger.
It is important to remember that the Purchases Ledger records the same transactions that are recorded in the PLCA in the General Ledger. The difference is simply that the transactions are split between different supplier accounts in the Purchases Ledger. Thus, if an entry is made, say, on the debit side of the PLCA there should also be entries totaling the same amount made on the debit sides of the relevant supplier accounts of the Purchases Ledger.
This is illustrated in the diagram below where the PLCA from the General Ledger of a business is shown on the left and the supplier accounts from the business’ Purchases Ledger are shown on the right.
We can see in the above diagram that the Balance brought down of £15,000 in the PLCA is the same amount as the total of the Balances brought down in the Purchases Ledger supplier accounts (i.e. £10,000+£5,000). This is also the case for the amounts described as Purchases and Bank in these ledger accounts.
The Double-entry system
Lastly, you should note that like the Sales Ledger, the Purchases Ledger is not part of the double-entry bookkeeping system. Thus, if an entry is made in the debit side of a supplier’s account, a credit entry is not required in one of the other supplier accounts.