What is the difference between Purchase ledger and Purchase account?


Quite a basic question in fact. A lot of students realize about these concepts as soon as they start studying Auditing especially when they have to apply different audit procedures where these basic concepts play pivitol role and thus we cannot escape them.

To begin with, we need to clear one misconception that LEDGER is NOT T-Account. But still both of these terms are employed interchangeably by teachers and therefore students wrongly interpret ledgers to mean t-accounts or accounts.

These two terms are substituted for each other because these two aspects are linked so closely together that we sometime disregard the fact that they are completely different. To understand the difference consider the following illustration

Suppose ledgers as a thick book on a particular matter that has many pages. These pages collectively makes the book. Further assume that each page is now account. Therefore, these accounts (of same characteristics) make up one ledger. Or simply ledger is a collection of accounts

In a nutshell, we can say that Ledgers are simply the registers where we keep T-accounts or T-accounts are kept in ledgers.

If we remember, in an accounting cycle ledgers or in fact accounts within ledgers are populated by taking information from the journals. This process of transferring information from journals to ledgers is called posting.

Putting the process of posting in words it is:

From books of prime entry or simply journals, financial information is then processed (posted) to ledgers.

Keep in mind that we have specific journals from which information passes on only to specific ledgers and not just any ledger. To learn more about journals and their types please read What is Journal and how many types of journals are in accounting?

Now as I said, we have specific journals and specific ledgers so it implies that business transactions are recorded and reported by grouping transactions which are of similar nature or characteristics. For example purchases from creditors, credit sales to customers etc.

If we understand the difference between accounts and ledgers now we are all set to understand purchase ledger and purchase account distinction.

Purchases ledger is simply a collection of creditors’ T-accounts or an accounting book in which accounts of creditors are maintained. Under Purchases ledger also called as “Creditors Ledger” individual accounts of creditors from whom we have bought stock, services or any kind of assets are kept and updated accordingly.

Purchases account is a T-account in which we only record value of purchases made in a particular period and this account is maintained under General Ledger. Purchases account only contains purchases of stock and nothing else. Please read the difference in stock purchase and fixed asset purchase from accounting perspective for more details about why we do not record all kind of purchases in Purchases account.

Its extremely important to remember that whenever entity acquire or purchase anything on credit i.e. stock, fixed asset etc. these creditors will be recognized and recorded under Purchases ledger. In purchases ledger, for each creditor we will open a new T-account under his own name.

But only the accounts where the value of purchase  or in other words the account in which debit effect of entry is recorded will be different i.e. in case of purchase of stock it will be Purchases account and in case of acquisition of fixed asset e.g. machinery it will be Machinery account. And both purchases account and machinery account will be maintained under General ledger.

I emphasize again that all the personal accounts of creditors, whether we have bought stock or fixed asset from them, will be maintained under Purchases ledger.


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