In Part 2, we have learned about the purchases account.
When an enterprise purchases goods from the suppliers, besides the cost charged by the suppliers, we have other types of costs which are also part of the cost of the purchases of goods /services.
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OTHER TYPES OF COSTS OF PURCHASES COMPRISES: |
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Transportation costs. Other terms having the same meaning is freight inwards, carriage inwards or transport inwards |
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Insurance expenses |
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Custom duties |
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Taxation on purchases like VAT or GST |
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In term of double entry, we have the following: Debit: Purchases-Carriage inwards $100 Debit: Purchases- Insurance $100 Debit: Purchases-Custom Duties $200 Debit: Purchases- VAT/GST $ 50 Credit : Bank $450
Being taking up other part of the costs of the purchases. [These expenses will be shown in the Income Statement directly below the purchases account]
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