Posting of Purchase Day Book Total to Purchases Account

Explanation:
The Purchase Day Book is a subsidiary book used to record all credit purchases made by a business entity. It contains the details of the goods purchased, the name of the supplier, the invoice number, the date of purchase, and the amount of the purchase. At the end of the accounting period, the total of the Purchase Day Book is posted to the Purchases Account in the ledger.

Reasons for Posting to Purchases Account:
The Purchases Account is a nominal account used to record the cost of goods purchased by a business entity for resale or for use in the production process. The posting of the Purchase Day Book total to the Purchases Account is necessary for the following reasons:

- To determine the cost of goods sold: The Purchases Account is used to calculate the cost of goods sold during the accounting period. The total of the Purchase Day Book provides the total amount of goods purchased during the period, which is used to calculate the cost of goods sold.
- To update the inventory: The Purchases Account is also used to update the inventory of goods available for sale. The total of the Purchase Day Book is added to the opening inventory to determine the total inventory available for sale during the period.
- To calculate gross profit: The Purchases Account is used to calculate the gross profit of a business entity. The cost of goods sold, which is calculated using the Purchases Account, is subtracted from the sales revenue to determine the gross profit.

Posting to Debit of Purchases Account:
The total of the Purchase Day Book is posted to the debit side of the Purchases Account. This is because the Purchases Account is a nominal account and has a debit balance. The total of the Purchase Day Book represents the cost of goods purchased by the business entity, which is an expense. Expenses are recorded on the debit side of nominal accounts.

Conclusion:
In conclusion, the total of the Purchase Day Book is posted periodically to the debit side of the Purchases Account. This is necessary to determine the cost of goods sold, update the inventory, and calculate the gross profit of a business entity.