Grade 9 Accounting Credit Transactions (Posting to the

Grade 9 EMS – Term Three Accounting

Grade 9 Accounting – Credit Transactions

(Posting to the General and Debtors’ Ledgers)

Name

Class

1

Incorporating credit sales into the accounting system: Let’s begin by comparing a credit sale to a cash sale:

Cash Sale Credit sale

Description We sell goods to a customer, the customer receives goods, and in return we (the retailer) receive money (payment)

We sell goods to a customer, the customer receives goods. We do not receive payment, however the customer agrees to pay us at some point in the future. The customer now owes us money, and is referred to as a debtor.

Double entry 1

Dr Bank Cr Sales

Money is received as a result of the income sales.

Dr Debtors control Cr Sales

In this case, the business is generating an income from sales, but no money is received. Instead, the promise of money in the future is received.

Double entry 2

Dr Cost of sales Cr Trading Inventory

SAME

This records the loss of the asset trading inventory as it is used to generate and income.

Dr Cost of sales Cr Trading Inventory

SAME

This records the loss of the asset trading inventory as it is used to generate and income.

Difference

As we can see the only difference is that money is not received in a credit transaction. Therefore the bank account is replaced with the Debtors Control account. This asset account represents money that will be received in the near future.

Remember – we are the

ones doing the selling! So

it is from our point of view

as the business

http://images.google.co.za/imgres?imgurl=http://www.killarneymall.co.za/shopping/images/woolworths_logo.gif&imgrefurl=http://www.killarneymall.co.za/shopping/fashion_woolworths.html&h=96&w=130&sz=3&hl=en&start=3&tbnid=tr9QS6PgNrlyrM:&tbnh=67&tbnw=91&prev=/images?q=woolworths+logo&gbv=2&hl=en&sa=G

2

Revision Activity

Recording transactions in the books of first entry:

NB source documents

(Use the source documents to help you

choose the correct journal)

Cheque counterfoil (CPJ)

Receipt (CRJ)

Cash register roll (CRJ)

Invoice (issued to a debtor when they purchase form us) (DJ)

Credit note (Issued when a debtor returns stuff to us) (DAJ)

You are provided with information from the books of Strummer Stores for the month of April 2012. Strummer Stores are retailers of musical equipment, they sell goods for cash and credit. Strummer Stores uses a mark-up of 100 % on cost. You are required to record these transactions in the following books of first entry: 1. The Cash Receipts Journal 2. The Cash Payments Journal 3. The Debtors’ Journal 4. The Debtors’ Allowances Journal Transactions for April 2012: Day Transaction 1 Bought merchandise from Hummble Suppliers for R800, issued cheque89. 2 Sold goods for cash, R1 400. 4 Issued invoice 68 to B. Babatu (D4) for R840 and invoice 69 to K. Karabo

(D1) for R220. 7 Paid R2 890 with cheque 90 to Usain Suppliers. R2 200 for merchandise,

and R690 for stationery. 11 Sent cheque 91 to Free-fall Formats for advertising, R1 450. 15 Bought packing material from medi-pack, paid R560 with cheque 92. 17 Sold goods for cash, R1 700. B. Babatu returned goods, issued credit note 32 for R84. 19 Sold goods for cash, R400. 21 Issued invoice 70 to D. Diboko (D2) for R660. 22 Issued credit note 33 to D. Diboko for goods not as per invoice, R100. 25 Issued receipt 58 to K. Karabo for R220 paid on account. 26 Sold goods for cash, R4 500. Issued invoice 71 to G. Goloka (D3) for R3 000. 29 Issued cheque 93 to Superior Suppliers for merchandise, R8 000 and

stationery R340. 30 Paid Hercules Properties R4 500 with cheque 94 for rent. Cashed a cheque for salaries, R7 500

3

Cash Payments Journal of Strummer Stores for April 2012

Doc Day Details Bank Trading Stock

Stationery Sundry accounts

Amount Details

89 1 Hummble Stores 800 800

90 7 Usain Suppliers 2 890 2 200 690

91 11 Free-fall Formats 1 450 1 450 Advertising

92 15 Medi-Pack 560 560 Packing Material

93 29 Superior Supp. 8 340 8 000 340

94 30 Hercules Prop. 4 500 4 500 Rent Expense

95 Cash 7 500 7 500 Salaries

26 040 11 000 1 030 14 010

Cash Receipts Journal of Strummer Stores for April 2012

Doc Day Details Fol Analysis Bank Sales Cost of Sales

Debtors’ Control

Sundry accounts

Amount Details

2 Cash 1 400 1400 1 400 700

17 Cash 1700 1700 1700 850

19 Cash 400 400 400 200

58 25 K. Karabo D1 220 220 220

26 Cash 4 500 4 500 4 500 2 250

8220 8 000 4 000 220

Debtors’ Journal of Strummer Stores for December 2012

Doc Day Details Fol Sales Cost of Sales

68 4 B. Babatu D4 840 420

69 K. Karabo D1 220 110

70 21 D. Diboko D2 660 330

71 26 G. Goloka D3 3 000 1 500

4 720 2 360

Debtors’ Allowances Journal of Strummer Stores for December 2012

Doc Day Details Fol Debtors’

Allowances Cost of Sales

32 17 B. Babatu 84

33 22 D. Doboko 100

4

Posting to the General Ledger from the journals of businesses that offer

credit, namely the Cash Receipts Journal, the Debtors’ Journal, and the Debtors’ Allowances Journal.

Introduction:

We have already covered posting from the Cash Journals to the General Ledger.

You are advised to go over those lessons in preparation for this lesson.

In the explanations below each journal that records transactions with debtors will be

explained separately. Each double entry will be discussed in detail. To assist you in

understanding the posting to the General Ledger, you are encouraged to go over

the summary below. This summary explains the difference between each of the

types of ledger accounts.

Summary of the types of ledger accounts:

Assets Liabilities

E.G. Debtors’ Control E.G. Creditors’ Control

+ - - +

Increase on

the debit side

Decrease on the credit

side

Decrease on the debit side

Increase on the credit

side

Expenses Incomes

E.G. Cost of Sales E.G. Sales

+ - - +

Increase on

the debit side

Decrease on the credit

side

Decrease on the debit side

Increase on the credit

side

5

1. Posting the Debtors’ Journal:

Debtors’ Journal of EX Ample Traders for June 2012


33 3 P. Moekoena D3 1 320 660

34 12 V. Chase D1 3 280 1 640

4 600 2 300

Dr DC Cr Sales Dr COS Cr TS

The total of the Sales column (R4 600):

Debtors’ Control B9

June 1 Balance b/d 6 450

30 Sales Dj 4 600

Sales N1

June 30 Debtors’ Control

Dj 4 600

In the above example, you can see the posting of the Sales column total to the

General Ledger. Only the total is posted, as it is a summary of all the transactions in

the journal. The total of R4 600 represents the income earned from credit sales, as

well as the amount that debtors owe. It is therefore posted to the credit side of the

Sales account (an income which increases on the credit side) and the debit side of

the Debtors’ Control account (an asset which increases on the debit side).

The total of the Cost of Sales column (R2 300):

Trading Stock B12

June 1 Balance b/d 6 450 June 30 Cost of Sales

Dj 2 300

Cost of Sales N2

June 30 Trading Stock

Dj 2 300

Trading stock is being removed from the store room, and is being used to generate

a profit. This needs to be reflected in the accounting records. Therefore the amount

of R2 300 is credited to the Trading Stock account (decrease) and debited to the

Cost of Sales account (increase). The asset becomes and expense when it is used

up to make a sale.

6

The debtors ledger is known as a subsidiary ledger, this is due to it not

being part of the actual accounting cycle, but rather a specific tool for managing the

amounts owed by debtors.

In the Debtors’ Ledger, each debtor has their own account; this allows specific

transactions to be recorded individually. As a result, a quick glance at any debtor’s

individual ledger account will tell you how much that debtor owes the business.

Format of the Debtors’ Ledger

Debtor’s Ledger of M. Onster D1

Month Day Document number Code Debit + Credit - Balance

In this column we record the source document number of the particular transaction

See code table

Transactions that result in the debtor owing more are recorded in this column, such as when the debtor purchases goods.

Transactions that result in the debtor owing less are recorded in this column, for example payments or returns.

The balance column shows a running balance. This means that the effect of every transaction changes the balance.

Explanation of Codes: The codes are used as a quick means of identifying transactions. Codes are not standardized and businesses use different codes.

Code Explanation

1 This is the code for a credit sale

2 This is the code for a payment

3 This is the code for a return

What is the difference between the Debtors’ Control account in the

General Ledger and the Subsidiary Debtors’ Ledger?

The Debtors’ Control account is prepared using journal totals and

therefore represents transactions with all debtors. In the Debtors’

Ledger, each debtor has an individual account that shows what each

debtor owes.

Posting from the Debtors’ Journal to the Debtors’ Ledger

Debtors’ Journal of EX Ample Traders for June 2012


66 4 C. Roth D1 980 600

Debtor’s Ledger of C. Roth D1

Month Day Document number Code Debit Credit Balance

June 1 Account Rendered 560

4 Invoice 66 1 980 1 540

Take Note:

The entry on 1

June is the

balance owed

by debtor C

Roth at the

beginning of

the month.

7

Explanation: As you can see in the above example, the individual transaction is posted to the individual debtor’s

account. In this case, debtor C. Roth. The transaction is posted on the day that it took place, in this

case the 4th of June. The document number as pointed out above is written out in full, so that you

can see what type of transaction is being posted (an invoice records a sale to a debtor) and

therefore choose the correct code. In this case code 1 (for a sale). The amount in the Debtors’

Control column, which records the value of the sale, and therefore what the debtor owes, is posted

to the ‘Debit’ column in the ledger. The debit column represents an increase in what is owed by the

debtor. It is therefore added to the amount in the balance column (line above) to get the new

balance amount. Thus by looking at the most recent balance column, you can always tell what a

debtor owes.

Activity 9.1

1 Which business issued the statement?

2 Who owes the business money?

3 How much does the customer owe the business in total?

4 Identify the two types of transactions shown on the statement below.

4.1

4.2

5 Why do you think the current amount (R3 300) and the amount due (R16 000) are different

8

Activity 9.4 (Page 150)

Posting the Debtors’ Journal to the General Ledger:

The total of the Sales column (R9 750):


June 1 Balance b/d 14 300

30 Sales Dj 9 750

Sales N1


Dj 9 750

The total of the Cost of Sales column (R6 500):

Trading Stock B12

June 1 Balance b/d 11 000 June 30 Cost of Sales

Dj 6 500

Cost of Sales N2


Dj 6 500

Debtors’ Ledger of Pippa Photography for March 20.1

Jarred Naidoo D1

Date Details Code Debit (plus)

Credit (minus)

Balance

Kumeul Moodley D2


Credit (minus)

Balance

James Wood D3


Credit (minus)

Balance

9


Posting the Debtors’ Journal to the General Ledger:


June 1 Balance b/d

30 Sales Dj 9 750

Trading Stock B12

June 1 Balance b/d June 30 Cost of Sales

Dj 6 500

Sales N1


Dj 9 750

Cost of Sales N2


Dj 6 500

Debtors’ Ledger of Scrunchy Traders for December 20.5

Andrew Smith D1


Credit (minus)

Balance

Nebs Khuzwayo D2


Credit (minus)

Balance

Travis Grigesh D3


Credit (minus)

Balance

Jason Galt D4


Credit (minus)

Balance

10

Posting the Debtors’ Allowances Journal to the General Ledger:

The Debtors’ Allowances Journal records returns made by debtors to the business.

As a result of the return, two changes can be identified. Firstly the debtor owes less,

and secondly the business now has more stock. As a result, there are two columns,

one to cancel the sale, and the second one to record the increase in stock.

Debtors’ Allowances Journal of EX Ample Traders for June 2012



9 6 P. Moekoena D3 140 70

10 18 V. Chase D1 360 180

500 250

The total of the Debtors’ Allowances column (R500):


June 1 Balance b/d 6 450 June 30 Debtors’ Allowances

Daj 500

30 Sales Dj 4 600

Debtors’ Allowances N3

June 30 Debtors’ Control Daj 500

The total of the Debtors’ Allowances column, R500, is posted to the credit (minus)

side of the Debtors’ Control account as the debtors owe R500 less. The amount is

also posted to the contra account, Debtors’ Allowances to record the cancellation of

the sale.

The total of the Cost of Sales Column (R250):

Trading Stock B12

June 1 Balance b/d 6 450 June 30 Cost of Sales Dj 2 300

30 Cost of Sales Daj 250

Cost of Sales N2

June 30 Trading Stock Dj 2 300 June 30 Trading Stock Daj 250

The total of the Cost of Sales column represents the total value of stock that was

returned by debtors. As this amount would have been returned to the businesses

actual store room, the amount must also be added to the Trading Stock account

(the Trading Stock account represents the Store room). The double entry for this is

to debit the Trading Stock account as it is increasing, and to credit the Cost of Sales

account.

11

Posting from the Debtors’ Allowances Journal to the Debtors’

Ledger:

Debtors’ Allowances Journal of EX Ample Traders for June 2012



23 7 C. Roth D1 98 60




4 Invoice 66 1 980 1 540

7 Credit Note 23 3 98 1 442

Explanation:

In this example, which is a continuation of the previous example, a return by a

debtor, recorded in the Debtors’ Allowances Journal is posted to the Debtors’

Ledger.

A return by a debtor to a retailer is seen as a reversal of the original sales

transaction. As a result of the return, the amount that the debtor owes the retailer

decreases. The return is recorded in the DAJ, this is then posted to the individual

debtor’s accounts.

As the account is an asset, it decreases on the credit side, due to the return, the

debtor owes less, and the account is therefore credited.

In the above example, debtor C. Roth is returning something previously purchased

for R98, C Roth therefore owes EX Ample Traders R98 less. R98 is therefore

subtracted from the amount in the balance column,

R1 540, resulting in a new balance of R1 442 (this is therefore the amount that

debtor C. Roth currently owes EX Ample Traders).

Did you know?

Asset accounts increase on the Debit side and decrease on the Credit

side.

Take note:

The amounts

in the

Debtors’

Ledger of C.

Roth from

the previous

example are

shown in

grey text.

12

Activity

Debtors’ Allowances Journal of Crash Hardware for January 20.1



001 4 J. Jones D2 200 100

002 27 R. Rivers D3 900 0

003 31 B. Bean D1 500 250

1 600 350

The total of the Debtors’ Allowances column (R1 600):


Jan 31 Sales Dj 22 100 June 30 Debtors’ Allowances

Daj 1 600


Jan 31 Debtors’ Control Daj 1 600

The total of the Cost of Sales Column (R350):

Trading Stock B12

Jan 31 Cost of Sales Daj 350 Jan 31 Cost of Sales Dj 2 300

Cost of Sales N2


Debtors’ Ledger of Crash Hardware for January 20.1

B. Bean D1


Credit (minus)

Balance

J. Jones D2


Credit (minus)

Balance

R. Rivers D3


Credit (minus)

Balance

13

Activity 9.8 (Page156)

Debtors’ Journal of


Debtors’ Allowances Journal of



General Ledger of Face-It for March 20.8

Balance Sheet Section


Jan 31 Sales Dj June 30 Debtors’ Allowances

Daj

Trading Stock B12

Jan 31 Cost of Sales Daj 350 Jan 31 Cost of Sales Dj 2 300

Nominal Section

Sales N1


Jan 31 Debtors’ Control

Daj 1 600

14

Cost of Sales N2


Debtors’ Ledger of Face-It for March 20.8

R. Naidoo D1


Credit (minus)

Balance

S. Jackson D2


Credit (minus)

Balance

M. Gilks D3


Credit (minus)

Balance

J. Savage D4


Credit (minus)

Balance

J. Jansen D5


Credit (minus)

Balance

What is the total owed by the five debtors?

15

3. Posting the Cash Receipts Journal to the General Ledger:

As this has already been covered, only the posting of the Debtors’ Control column

will be covered.

Cash Receipts Journal of EX Ample Traders for June 2012

Doc Day Details Fol Analysis Bank Sales Cost

of Sales

Debtors’ Control

Sundry accounts

Amount Details

28 Cash

900 900 900 450

44 29 P. Moekoena D3 650 650 650

14 600 7 600 3 800 4 600

2 400


June 1 Balance b/d 6 450 June 30 Debtors’ Allowances

Daj 500

30 Sales Dj 4 600 Bank CRJ 4 600

Being an asset, the Debtors’ control account decreases on the credit side. The total

of the Debtors’ control column in the Cash Receipts Journal represents payments

received from debtors; the amount is therefore posted to the credit or minus side of

Debtors’ Control, as the debtors now owe the business R4 600 less.

Posting from the Cash Receipts Journal to the Debtors’ Ledger:

Cash Receipts Journal of EX Ample Traders for June 2012

Doc Day Details Fol Analysis Bank Sales Cost of

Sales

Debtors’

Control

Sundry

accounts

Amount Details

44 15 C. Roth D1 560 560 560




4 Invoice 66 1 980 1 540

7 Credit note 23 3 98 1 442

15 Receipt 44 2 560 882

16

Explanation:

In the cash receipts journal above, you can see the recording of a

receipt from a debtor, C. Roth. Like any cash received, cash received

from a debtor is recorded in the cash receipts journal.

The effect of this receipt is that debtor C. Roth owes EX Ample traders

less money. The receipt is for R560, therefore C. Roth owes R560 less,

as this is what he has paid on his account.

Being an asset, the account decreases on the credit side, and because

the debtor owes less, due to payment, the account is decreasing.

Hence the account must be credited.

As a result of prior transactions, the debtor owed EX Ample Traders an

amount of R1 442. The debtor has now paid an amount of R560, and

therefore now owes R882. This can be seen in the Balance column

which is updated after every transaction.

17


Debtors’ Ledger of Dlamini Drink Distributors

R. Duthie D1


Credit (minus)

Balance

S. Graham D2


Credit (minus)

Balance

J. Baxter D3


Credit (minus)

Balance

M. Clark D4


Credit (minus)

Balance

Dlamini Drink Distributors

Debtors’ List as at 31 October 20.1

R. Duthie D1

S. Graham D2

J. Baxter D3

M. Clark D4

Total

18

Activity Use the Journals below to prepare the account of K. Khoza D1 in the Debtors’ Ledger of Ndebele Traders for the month of November 2012. On 1 November K. Khoza owed an amount of R1 568 to Ndebele Traders.

Debtors’ Journal of Ndebele Traders for November 2012

Doc Day Details Fol Debtors’ Control

Cost of Sales

33 2 Z. Zitha D1 700 350

34 5 K. Khoza D3 1 400 700

35 9 D. Dlamini D4 1 380 690

36 17 K. Khoza D3 1 560 780

37 25 M. Mabena D2 600 300

5 640 2 820

Debtors’ Allowances Journal of Ndebele Traders for November 2012



12 7 K. Khoza D3 400 200

13 15 Z. Zitha D1 50 25

14 22 D. Dlamini D4 90 45

15 29 K. Khoza D3 80 40

620 310

Cash Receipts Journal of Ndebele Traders for November 2012

Doc Day Details Fol Analysis Bank Sales Cost of Sales

Debtors’ Control

Sundry accounts

Amount Details

63 1 K. Khoza D3 1 568 1 568 1 568

8 Cash 450 450 450 225

64 15 Z. Zitha D1 8 50 850 850

22 Cash 940 940 940 470

65 30 K. Khoza D3 2 000 2 000

66 FNB 29 2 029 29 Interest

Received

5 837 1 090 695 4 418 29

K. Khoza D3


Credit (minus)

Balance

Nov 1 Account Rendered 1 568

19


General Ledger of JJ Electronics – July 20.6

Balance Sheet Section

Capital B1

July 1 Balance b/d 200 000

Bank B2


Vehicles B3

Trading Stock B4




20

Nominal Section

Sales N1

July 1 Total b/d 185 400


Cost of Sales N3


Current Income N4


Salaries and Wages N5


Water and Electricity N6


Rent Income N9


21

Debtors’ Ledger of JJ Electronics

B. Ben D1


Credit (minus)

Balance

D. Denver D2


Credit (minus)

Balance

K. Kennedy D3


Credit (minus)

Balance

S. Smith D4


Credit (minus)

Balance

JJ Electronics

Debtors’ List as at 31 July 20.6

B. Ben D1

D. Denver D2

k. Kennedy D3

S. Smith D4

Total

22

Activity

Study the two ledger accounts below, prepared by a trainee accountant. Although all of the amounts are correct, the trainee has managed to mix-up her debits and credits. Some of the entries are on the incorrect side, and in one case the accountant was so unsure, she put an entry on both sides of an account (effectively cancelling the entry!).

You are required to re-draw and correct the accounts in your book. Don’t forget to balance the accounts at the end of the month.

Trading Stock B9

July 31 Cost of Sales

Dj 8 340 July 1 Balance b/d 3 640

Bank Cpj 15 450 31

Cost of Sales

Crj 6 200



30 Bank Crj 7 000

Sales Dj 6 350

Answers

Trading Stock B9

July 1 Balance b/d 3 640 July 31 Cost of sales

DJ 8 340

31

Bank CPJ 15 450 31

Cost of sales

CRJ 6 200

Balance c/d 4 550

19 090 19 090

Aug 1 Balance b/d 4 550


July 1 Balance b/d 7 400 July 31 Bank CRJ 7 000

31 Sales DJ 6 350 Balance c/d 6 750

13 750 13 750

Aug 1 Balance b/d 6 750

Documents

Grade 9 Accounting Credit Transactions (Posting to the