When goods are bought on credit, they are first recorded in the purchases day book. The purchases day book is a special journal used to record all credit purchases of goods meant for resale. This is crucial because it keeps track of the amounts owed to suppliers and helps manage the accounts payable for a business.
Here's a simple breakdown of why it is the purchases day book:
The purchases day book contains a record of all transactions involving goods purchased on credit. It helps maintain an organized list of suppliers and the amounts due to them.
The cash book records cash transactions and is not suitable for credit transactions.
The journal proper is used for transactions that do not fit into any other specific journal, but regular credit purchases have their own designated day book.
The sales day book is used for recording sales made on credit, and is not for purchases.
Therefore, by recording the credit purchases in the purchases day book, a business keeps an accurate and organized record of its obligations, facilitating better financial management.