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Purchases Print E-mail

Purchases are the direct costs related to sales and overhead costs incurred for running the business. They are deducted.

The following procedure is advised:

  1. File invoices in alphabetic order by supplier using file dividers to identify each supplier. Arrange all invoices from each supplier in date order. Alternatively, arrange invoices from all suppliers in date order and write your own reference on each invoice such as SUP 1, SUP2 etc.

  2. List the invoices on a spreadsheet following the example below. The VAT can usually be found on the invoice. Use the Net columns to analyse expenses by major categories. (Use your last set of accounts to guide you when selecting categories).

  3. Add up the columns from the beginning of the financial year to the end of the financial year. Prepare a separate spreadsheet for each financial year.

  4. When you pay the supplier, note it on the same line in the amount paid column and note down how much is still owed in the "money owed" column.

Purchase invoices





Supplier  account number

Invoice number/

Own ref

Expense account number





Net expense


Note on VAT
Gross includes VAT. Net is before VAT is added on. If your business is not registered for VAT or there is no VAT due on the sale or expense, then VAT is ignored and net will be the same amount as gross.

If it only states "inclusive of VAT", simply take the gross amount divided by 117.5 (UK) multiplied by 100 to get the net amount. The VAT is the difference between the Gross and Net amounts. If you have not registered for VAT, use the gross amounts in the net columns and ignore VAT.

Spot checks

"list of purchases" column in the annual summary

  1. Agree the total at the end of each net column to the annual summary on a line by line basis.

  2. Agree total VAT to the VAT line on the annual summary.

  3. Agree total gross purchases to the amount in the supplier control line in the annual summary.

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