Purchase of Goods

The transaction involves the purchase of goods worth Rs. 100,000 from M/s ABC Ltd. The purchase is made on credit, which means that the payment will be made at a later date. The journal entry for this transaction is as follows:

Journal Entry:

Date: [Date of the transaction]

Purchase A/C Dr. Rs. 100,000
To M/s ABC Ltd Rs. 100,000

Explanation:

- The journal entry starts with the date of the transaction.

- The account debited is "Purchase A/C" because it represents the purchases made by the business. The amount debited is Rs. 100,000, which is the value of the goods purchased.

- The account credited is "M/s ABC Ltd" because it is the supplier from whom the goods are purchased. The amount credited is Rs. 100,000.

Implications:

- The purchase of goods increases the inventory or stock of the business. Hence, the "Purchase A/C" is debited.

- The credit to "M/s ABC Ltd" indicates that the business has a liability to pay the supplier for the goods purchased. This liability will be settled at a later date as per the credit period.

Credit Period and Interest:

As per the terms mentioned, ABC Ltd has provided a credit period of 60 days. This means that the business has 60 days to make the payment for the goods purchased. If the payment is delayed beyond the credit period, an interest of 15% per annum will be charged.

Journal Entry for Interest:

If the payment is delayed beyond the credit period and the interest is charged, a separate journal entry will be required to account for the interest expense. Assuming that the payment is delayed beyond the credit period, the journal entry for the interest will be as follows:

Date: [Date of the interest charge]

Interest Expense A/C Dr. Rs. [Interest Amount]
To ABC Ltd Rs. [Interest Amount]

The "Interest Expense A/C" is debited to recognize the expense incurred due to the delayed payment. The "ABC Ltd" account is credited to reflect the liability for the interest charged.

Implications of Interest Entry:

The interest charged by ABC Ltd is an additional expense for the business. Hence, it is debited to the "Interest Expense A/C." The credit to ABC Ltd indicates that the business has a liability to pay the interest charged.

Overall, the initial journal entry records the purchase of goods on credit, while the subsequent interest entry accounts for the interest charged if the payment is delayed beyond the credit period.