What is Purchase Import? When we purchase goods from out of our country that is called Purchase Import. For example we are living in India and we are importing goods from China then this purchase shall be treated as Purchase Import.
Following payments are included in Purchase Import Account:-
- Cost of material.
- Custom Duty on material purchased.
- Freight and cartage expenses.
- Bank charges in respect of payment made to supplier.
- Insurance expenses.
- Shipping agent’s service charges or clearing agent’s service charges.
- Other incidental expenses in respect of purchase from out of country.
Procedure for Import of goods:- An importer has to follow the following procedure for import of goods:-
- First of all, the importer must have valid license to import that particular goods.
- Then the importer places the purchase order to exporter.
- After receiving the purchase order from the importer, the exporter dispatches the goods through road, sea or by air as per the situation demands.
- The exporter then sends the Invoice for the material, to the importer either directly or through his banker.
- After receiving the bill the importer pays the same either directly or through Letter of Credit (L/C).
- After arrival of the goods the importer pays the custom duty to custom department.
- Payment of cartage and other clearance work is done by clearing agent. For that, the importer has to pay some service charges to them.
- After all above is done, the imported goods is in the hand of importer to sale it.
- M/s XYZ Ltd. imported goods from M/s ABC Corporation China on 10.01.16. M/s ABC Corporation raised an Invoice no. 1512 dated 10.01.16 for US $ 10000.
- M/s XYZ Ltd. paid the above bill on 15.01.16. They paid Rs.540000/= against US $ 10000 from State Bank of India and Rs.2500/= as bank charges.
- M/s XYZ Ltd also made the following payments in respect of above import:-
- Freight and cartage Rs.30000/= to M/s Perfect Shipping Co.
- Custom Duty Rs.162000/= paid through State Bank of India.
- Rs.16500/= paid to M/s Prince Associates for their service charges to clear the goods through State Bank of India.
- How the above transactions shall be booked in the account books of M/s XYZ Ltd.?
We shall make the following entries in the books of M/s XYZ Ltd. as under:-
Entry – 1
Debit: Purchase Import Account Rs.540000/=
Credit: M/s ABC Corporation, China Rs.540000/=
(Being goods purchased from M/s ABC Corporation, China as per their Invoice No. 1512 enclosed)
Debit: M/s ABC Corporation, China Rs.540000/=
Credit: State Bank of India Rs.540000/=
(Being payment of US $ 10000 made through State Bank of India)
Entry – 3
Debit: Purchase Import Account Rs.2500/=
Credit: State Bank of India Rs.2500/=
(Being currency exchange charges paid through State Bank of India for payment of US $ 10000 to M/s ABC Corporation, China)
Entry – 4
Debit: Purchase Import Account Rs.30000/=
Credit: Cash Account Rs.30000/=
(Being cash paid to M/s Perfect Shipping Co. for Freight and cartage of goods from China)
Entry – 5
Debit: Purchase Import Account Rs.162000/=
Credit: State Bank of India Rs.162000/=
(Being custom duty paid through State Bank of India for the goods imported from M/s ABC Corporation, China)
Entry – 6
Debit: Purchase Import Account Rs.16500/=
Credit: State Bank of India Rs.16500/=
(Being amount paid to M/s Prince Associates for their service charges to clear the goods through State Bank of India)
From above example it is clear that all expenses related to purchase import also shall be debited to Purchase Import Account.