What is a purchase ledger? Meaning and contents

What is a purchase ledger?

Think of it as a set of supplier accounts. Every time a supplier bills you, the amount goes into that supplier's account as money owed. Every time you pay, or the supplier sends a credit note, the balance goes down. At any moment the ledger tells you who you owe and how much.

HMRC's enquiry manual describes it in the same terms: the purchase ledger holds suppliers' personal accounts, while the nominal ledger holds every other account, such as expenses, assets and loans. The purchase ledger is not your bank record. It shows what has been invoiced, including bills that have not left the bank yet.

What does a purchase ledger contain?

Each supplier account typically holds:

• Purchase invoices, with the supplier's reference, invoice date, due date and amount.
• Credit notes from the supplier, which reduce the balance. See what a credit note is if you need the document itself explained.
• Payments, matched against the invoices they settle.
• Settlement discounts, where you take an early-payment discount.

The running balance on each account is what you owe that supplier. Add the balances together and you have the total of your trade creditors.

Here is a small example. The figures are illustrative.

The purchase ledger total is £780. That is the amount your accounts payable balance should show.

Purchase ledger vs purchase day book vs accounts payable

• Purchases day book. A list of purchase invoices in date order, before they reach the ledgers. HMRC classes it as a prime record, not part of the double-entry books. In the example above, the day book totals are £1,650 net, £330 VAT and £1,980 gross.
• Purchase ledger. The same invoices, credit notes and payments, sorted by supplier instead of by date.
• Accounts payable. The balance sheet figure, and also the name of the function that handles supplier bills. Xero's own definition is money owed to suppliers for goods or services bought on credit. In everyday use, "purchase ledger" and "accounts payable" describe the same thing from two angles: the ledger is the detailed record, and accounts payable is the total it produces. Other names you will meet are creditors, trade creditors and the payables ledger.

For the steps around it, from receiving a bill to paying it, read the accounts payable process.

How does it relate to the nominal ledger and control account?

The nominal ledger holds the accounts your accountant reads: expenses, VAT, bank and so on. To keep the two in step, the purchase ledger total is posted to the nominal ledger as one figure. In accounting software, that figure sits in the accounts payable account, which is the control account.

Using the example, the invoices post as a debit of £1,650 to purchases and expenses, a debit of £330 to VAT, and a credit of £1,980 to the control account. The £1,200 payment is a debit to the control account and a credit to bank. The control account now shows £780 credit, which matches the purchase ledger.

HMRC describes a control account as a summary of a ledger's totals for a period, used to prove the arithmetical accuracy of that ledger. If the ledger total and the control account disagree, something has been posted to one side only. Nominal codes are the accounts on the other side of each entry.

Accounting software does this automatically. In Xero, Accounts Payable is a system account that always balances and equals the sum of approved bills. Xero does not allow transactions or manual journals to be entered straight to that account, so its balance follows your bills and payments.

Where is the purchase ledger in Xero, QuickBooks Online and FreeAgent?

None of the three has a screen called "purchase ledger". You find it through the supplier balance reports.

Xero. Go to Reporting, then All reports, and open Aged Payables Summary. It shows the amounts you owe each contact and whether they are overdue. Click an amount to open Aged Payables Detail, which lists the individual bills, credit notes and overpayments. You can age by Due Date or Invoice Date. Xero suggests entering purchases and reconciling bank accounts first. The report includes bills that were awaiting payment on the report date, even if they have been paid since.

QuickBooks Online. Under Reports, the "What you owe" group holds Accounts payable aging summary and detail, Unpaid Bills, and Vendor Balance Summary and Detail. Which reports you see depends on your plan and region; Intuit lists them in its reports by subscription page.

FreeAgent. Go to Accounting, then Reports, and under Breakdown open Aged Creditors. It shows how much you owe each supplier and a breakdown of each bill. Age it by bill date or due date, view it as at a custom date, and export CSV or PDF. FreeAgent's Show Transactions report is its nominal ledger.

What goes wrong with a purchase ledger?

• Duplicate bills. The same invoice arrives by email and post and is keyed twice. Search by supplier and amount before you post, and stop duplicates at intake.
• Unallocated payments and credit notes. A payment sits on account, so the supplier looks unpaid, or overpaid. Match each one to its invoice or credit note.
• Ledger and supplier statement disagree. Compare them line by line. Our guide to supplier statement reconciliation walks through it.
• Wrong period. A bill dated after month end gets posted into the month. Check bill dates before you close the period.

Most of these begin at data entry. Datamolino captures supplier invoices and credit notes, reuses your saved coding rules, and exports checked bills to Xero, QuickBooks Online or FreeAgent with the original attached. Its duplicate check works within a folder. See invoice automation for the workflow.

Is a purchase ledger the same as accounts payable?

In everyday use, yes. The purchase ledger is the detailed record by supplier, and accounts payable is the total it produces and the balance sheet line it feeds. Xero, QuickBooks Online and FreeAgent show it through aged payables or aged creditors reports.