What is Purchase Ledger and its role in Accounting and Bookkeeping?

What is Purchase Ledger?

The purchase ledger is a subledger in which purchases are recorded. The purchase ledger is part of the accounting department's database; it is not maintained by the purchasing department. The ledger is useful for segregating into one location a record of the amounts a company spends with its suppliers. The purchase ledger shows which purchases have been paid for and which purchases remain outstanding. A typical transaction entered into the purchase ledger will record an account payable, followed at a later date by a payment transaction that eliminates the account payable. Thus, there is likely to be an outstanding account payable balance in the ledger at any time.

On a Balance Sheet, the total unpaid bills will usually will be called Trade Creditors or Accounts Payable.

Which fields included in a manually-prepared purchase ledger?

- Purchase date

- Supplier code (or name)

- Supplier invoice number

- Purchase order number (if used)

- Identifying code for item purchased (could be item master code or the supplier's reference number)

- Amount paid

- Sales tax paid

- Payment flag (states whether paid or not)

In Accounting Software, by recording these three types of transactions, you will get an immediate calculation of how much money you owe to other people and businesses.

The accounting software will also allow you to allocate or apply the money paid to the bill it relates to. These are then regarded as cleared. Then if you run an open items or unpaid bills report, you will see just the unpaid bills, rather than all the previous paid bills which is usually a much bigger report, and not frequently needed.

If trading is healthy, many of the Supplier Accounts will be carrying the balances which you owe at any given time, usually just the most recent unpaid purchase invoices. As with all Accounts and Ledgers, the transactions will be recorded in Debits and Credits.

To make the accounting records complete, the Purchase Ledger has to be 'represented' in the General Ledger, even though they themselves are separate ledgers.

Example of Purchase Ledger Spreadsheet

This is achieved by the concept of Control accounts. On the General Ledger there will be a Control Account for the Purchase Ledger. Every time a transaction is recorded in the Purchase Ledger it is also recorded in the Purchase Ledger Control Account. This is the way that the General Ledger stays in balance.

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