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Difficulty: HardPurchases Journal and Purchases Returns Journal

The following transactions took place in the business of Kalu Enterprises during March 2026:

- March 5: Purchased goods on credit from Tunde Traders for ₦450,000, less 10% trade discount.
- March 12: Purchased office equipment on credit from Woodworks Ltd for ₦200,000.
- March 18: Returned damaged goods (list price ₦50,000) purchased on March 5 to Tunde Traders.
- March 22: Purchased goods for cash from Okon & Sons for ₦120,000.
- March 28: Purchased goods on credit from Bola & Co. for ₦300,000.

What are the correct total amounts to be posted to the Purchases Account and Purchases Returns Account in the General Ledger at the end of March 2026?

  1. Purchases Account: ₦705,000 (Debit); Purchases Returns Account: ₦45,000 (Credit)Answer
  2. B
    Purchases Account: ₦905,000 (Debit); Purchases Returns Account: ₦50,000 (Credit)
  3. C
    Purchases Account: ₦825,000 (Debit); Purchases Returns Account: ₦45,000 (Credit)
  4. D
    Purchases Account: ₦750,000 (Debit); Purchases Returns Account: ₦50,000 (Credit)

Answer

Purchases Account: ₦705,000 (Debit); Purchases Returns Account: ₦45,000 (Credit)
The Purchases Journal records only credit purchases of goods meant for resale, measured net of trade discount. The credit purchase from Tunde Traders amounts to ₦405,000 (₦450,000 less 10%) and Bola & Co. amounts to ₦300,000, giving a total of ₦705,000 which is debited to the Purchases Account. The Purchases Returns Journal records goods returned to credit suppliers net of the trade discount received at purchase, which equals ₦45,000 (₦50,000 less 10%) and is credited to the Purchases Returns Account.

Step-by-Step Solution

1
Identify transactions that belong in the Purchases Journal
Only credit purchases of goods intended for resale are included: March 5 (Tunde Traders) and March 28 (Bola & Co.). Office equipment is capital expenditure (General Journal), and cash purchases belong in the Cash Book.
The Purchases Journal strictly records credit purchases of trading inventory.
2
Calculate net credit purchases for the Purchases Journal total
Tunde Traders net amount: ₦450,000 - (10% of ₦450,000) = ₦405,000. Bola & Co. net amount: ₦300,000. Total Purchases Journal balance = ₦405,000 + ₦300,000 = ₦705,000.
Trade discounts must be deducted before entering transactions into subsidiary books.
3
Calculate net purchases returns for the Purchases Returns Journal total
Returned goods list price ₦50,000 less 10% trade discount (₦5,000) = ₦45,000 net returns balance.
Returned goods must be valued at the actual net cost price paid after deducting the original trade discount.
4
Determine General Ledger posting directions
Total Purchases Journal (₦705,000) is debited to Purchases Account; total Purchases Returns Journal (₦45,000) is credited to Purchases Returns Account.
Purchases represents an asset/expense increase (debit balance), whereas returns reduce purchases (credit balance).

Key Concept

Classification of transactions in subsidiary books and net valuation of credit purchases and returns after trade discounts.
Estimated Time:2m 0s
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Topics

Purchases Journal and Purchases Returns Journal

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