To derive purchases, rebuild the trade payables account and find the figure that makes both sides equal. That balancing figure is the credit purchases made in the year.
It is the supplier-side partner of recovering missing credit sales, and it feeds the cost of sales in inventory and cost of sales.
How does the payables account work?
Trade payables records what the business owes to suppliers. The opening balance and every new credit purchase add to the debt, so both are credits. Payments, discounts received and returns outwards reduce it, so they are debits.
The closing balance is carried down on the debit side. Total the debit side, then place the same total on the credit side. The gap between that total and the opening balance is the purchases figure.
Step by step
- Draw the account, debit left and credit right.
- Enter the opening balance on the credit side.
- Enter every reduction on the debit side: payments to suppliers, discount received, returns outwards.
- Enter the closing balance on the debit side as balance c/d.
- Total the debit side and copy the total to the credit side.
- Credit purchases = the total less the opening balance.
Worked example
Sinar Hardware has no purchase invoices for the year. The owner provides these figures.
- Trade payables at the start: RM6,800
- Payments to suppliers: RM47,500
- Discount received: RM700
- Returns outwards: RM1,000
- Trade payables at the end: RM8,200
- Inventory at the start: RM5,000; at the end: RM6,200
| Trade payables account | RM | RM | |
|---|---|---|---|
| Bank | 47,500 | Balance b/d | 6,800 |
| Discount received | 700 | Credit purchases (balancing figure) | 50,600 |
| Returns outwards | 1,000 | ||
| Balance c/d | 8,200 | ||
| 57,400 | 57,400 |
Check: 47,500 + 700 + 1,000 + 8,200 = 57,400. Purchases = 57,400 − 6,800 = RM50,600.
Cost of sales: 5,000 + 50,600 − 1,000 (returns outwards) − 6,200 = RM48,400.
The mistake to watch for
The usual slip is to treat the payments figure as the purchases figure.
Mistaken answer: purchases = RM47,500
The student used cash paid as if it were goods bought. The two differ by RM3,100, which is the discount, the returns and the RM1,400 rise in what is still owed.
Payments show what left the bank, not what arrived at the warehouse. Goods bought on credit and not yet paid for are in purchases but not in payments. The payables account joins the two.
Check yourself
1. Opening payables RM3,000; closing RM4,500; payments RM20,000. Find credit purchases.
Show answer
Debit side: 20,000 + 4,500 = 24,500. Purchases = 24,500 − 3,000 = RM21,500.
2. Opening payables RM9,200; closing RM7,700; payments RM61,000; discount received RM1,100. Find credit purchases.
Show answer
Debit side: 61,000 + 1,100 + 7,700 = 69,800. Purchases = 69,800 − 9,200 = RM60,600.
3. Opening payables were RM6,000. Credit purchases were RM30,000 and payments RM33,500. Find the closing balance.
Show answer
Credit side: 6,000 + 30,000 = 36,000. Closing balance = 36,000 − 33,500 = RM2,500.
Where this leads next
With sales and purchases recovered, the next question is what to do when the sales figure is hidden too: use a stated margin or markup correctly. The incomplete records practice set mixes all of these, and the double-entry and ledger trainer lets you check each posting.
If you know the method but still make direction errors under time pressure, our teachers can work through your attempts in online one-to-one Accounting tuition.