A cash purchase occurs when a business pays for goods or services immediately upon ordering or delivery. No credit is extended by the supplier. No account payable is created. The resulting expense is posted immediately to an expense account, regardless of whether the business uses accrual or cash basis accounting. Therefore, no purchase invoice is required. The entire transaction occurs in a single step.
A cash purchase does not need to be paid in physical cash. It can be paid via any form of exchange. Its distinguishing feature is that credit was not extended by the supplier.
Cash purchases are entered in exactly the same way as any other payment. They should specifically list any inventory items purchased.
When a cash purchase is entered, any available credits you may have with the supplier from debit notes or returns will not be applied. This is because such credits are recorded in suppliers’ subaccounts in Accounts payable, which is not invoked for cash purchases. To use such credits, a purchase invoice must be entered instead.
When a supplier statement is created, cash purchases from that supplier will not be included. If a complete record of purchases from a specific supplier is desired, purchase invoices must again be used.
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