Running a business requires extensive financial and strategic planning. For instance, companies often purchase raw goods or software at the beginning of the accounting cycle to ensure smooth operations.
It is common for businesses to purchase such goods and services on credit. As with any business transaction, these purchases need to be c recorded in the company’s ledger, which is referred to as a purchase credit journal entry.
In this blog, we are going to learn what a purchase credit journal entry is with the help of an example and understand how to record it in the ledger.
A purchase credit journal entry is recorded in the company’s purchase journal when buying goods or services on credit from a third party. To record the entry, the company will debit the purchase account, and a credit entry will be recorded under accounts payable.
In this scenario, the debit entry will increase the company’s assets and the credit entry will increase the company’s liabilities, thereby balancing the journals.
Still Stuck in Manual Financial Closes? It’s Costing You Time and Accuracy!
Discover 5 proven use cases of automated financial close that helped organizations cut close time by 30%.
Now that we know what a purchase credit journal entry is, let’s understand how to record it. To do the same, we’ll consider the following scenario.
To understand the purchase credit journal entry better, let’s take a look at a scenario where the company would have to record such a journal entry.
Suppose XYZ company is starting a new fiscal year on January 1st, 2025. At the start of the period, the company purchases raw goods on credit from a vendor to support their operations. XYZ company will record the transaction that occurred on January 1st, 2025, in their books.
XYZ company has an agreement with the vendor to pay cash for the purchased goods after six months. When the company settles this credit, they will again record the transaction in their books.
Considering the scenario mentioned, the following will be the details for the goods purchased on credit by XYZ company:
The company will record the following journal entries of purchase credit:
When the company purchases goods on credit:
| Date | Accounts | Debit | Credit |
| 1/1/2025 | Purchase account | $25,000 | |
| Accounts payable | $25,000 | ||
| Goods purchased on credit from vendor ABC |
When the company pays for cash for the goods purchased on credit:
| Date | Accounts | Debit | Credit |
| 1/7/2025 | Accounts payable | $25,000 | |
| Cash | $25,000 | ||
| Paid cash for goods purchased on credit from vendor ABC |
The ideal solution for this would be to use an automated accounting system with journal entry automation and anomaly detection capabilities, allowing companies to mitigate risk and prevent fraud.
HighRadius Record to Report solution improves accounting by introducing automation to the forefront, dramatically increasing efficiency and accuracy. HighRadius’ no-code platform with an Excel-like interface, LiveCube automates data extraction with customizable templates and is capable of handling millions of records. It enables enterprises to achieve a 50% reduction in manual operations by automating processes such as data retrieval from multiple sources and grouping certain transactions to simplify journal entry posting. It further allows users to do a one time set up automation for journal entry postings
HighRadius’ Automated Journal Posting capabilities facilitates auto posting of entries of different formats to any ERP system or any other system of records, all the while ensuring compliance with industry standards. Journal entries can also be customized based on individual system records.This function provides automated posting alternatives, which considerably speeds up the total closing process while maintaining accuracy, allowing firms to achieve 30% reduction in days to close.
HighRadius offers innovative solutions that can significantly streamline the process of creating and managing journal entries. With advanced automation, real-time data synchronization, and user-friendly interfaces, HighRadius helps businesses maintain accurate and efficient financial records. By leveraging HighRadius’ technology, businesses can enhance their financial processes, ensuring accurate and timely journal entries that support overall financial health.
A journal entry for a credit is recorded when a company purchases raw materials or goods from a vendor on credit. These transactions are recorded in one of the special ledgers of the company, the purchase journal. Recording a journal entry for purchase credit helps companies keep track of purchases and the balance due to the vendor.
The company will record a purchase credit journal entry on the date when it purchases goods by debiting the purchase account and crediting the accounts payable. When the credit is paid off, the company will record an entry debiting accounts payable and crediting the cash account.
An example of credit purchase would be if a company purchases goods from a vendor or a third party on credit to run their operations. The company and vendor will get into an agreement, as per their convenience, stating the purchase and when the company will pay off the credit with cash.
Journal entries for purchase credit are recorded in one of the special ledgers, namely the purchase journal. However, now that businesses are leveraging accounting systems to record transactions, the use of special journals is decreasing slowly, and all transactions are recorded in a single place.
Positioned highest for Ability to Execute and furthest for Completeness of Vision for the third year in a row. Gartner says, “Leaders execute well against their current vision and are well positioned for tomorrow”
Explore why HighRadius has been a Digital World Class Vendor for order-to-cash automation software – two years in a row.
For the second consecutive year, HighRadius stands out as an IDC MarketScape Leader for AR Automation Software, serving both large and midsized businesses. The IDC report highlights HighRadius’ integration of machine learning across its AR products, enhancing payment matching, credit management, and cash forecasting capabilities.
In the AR Invoice Automation Landscape Report, Q1 2023, Forrester acknowledges HighRadius’ significant contribution to the industry, particularly for large enterprises in North America and EMEA, reinforcing its position as the sole vendor that comprehensively meets the complex needs of this segment.
Customers globally
Implementations
Transactions annually
Patents/ Pending
Continents
Explore our products through self-guided interactive demos
Visit the Demo CenterPlease fill in the details below
Please fill in the details below
We have seen financial services costs decline by $2.5M while the volume, quality, and productivity increase.
Colleen Zdrojewski
Trusted By 800+ Global Businesses
