Sutherland - Bookkeeping: An integrated approach - Accounts Payable 1

Welcome to BookkeepingJournals and Ledgers

This module is about the records that are required when a business buys

things on credit.

Accounts Payable

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The Five Account Types

• Assets - possessions.

• Liabilities - debts that are owed to others.

• Owner’s Equity - what the business owes to its owner.

• Revenue - this is income.

• Expenses - the costs involved in running a business.

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Transactions

• Each time something changes in ownership or value, a transaction is said to have occurred.

• In accrual accounting, transactions are recorded in journals.– Supplier invoices in the Purchases Journal.– Adjustments in the Purchase Returns Journal.– Supplier payments in the Cash Payments Journal.

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PurchasesImportant Points

• ‘Purchases’ refers to the buying of trading stock for re-sale to customers.

• Purchases are classified as expenses in bookkeeping.

• Purchases made on credit are recorded in the Purchases Journal.

• The debts you owe for purchases are called Accounts Payable

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The Purchases JournalImportant Points

• Purchases are recorded in date order.

• The information is obtained from the suppliers’ invoices.

• The name of the supplier who is owed for each purchase must be recorded.

• The value of the goods purchased and the GST are recorded separately.

• The total of each invoice is recorded.

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The Purchases JournalExercise 3.1

Purchases Journal of Abel Co. PJ1

Date Invoice

No. Particulars

(Account Payable to be Credited) Folio Purchases GST Paid Total

3/1 215 J. Iwasaki AP1 150.00 15.00 165.00 10 183 M. Lee AP2 420.00 42.00 462.00 15 985 Malouf & Co. AP3 350.00 35.00 385.00 21 246 J. Iwasaki AP1 600.00 60.00 660.00 25 011 Malouf & Co. AP3 450.00 45.00 495.00 31 Totals: 1970.00 197.00 2167.00 Cr 2.1

The debt owed for these purchases is a Liability.

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Double Entry BookkeepingImportant Points

• Each transaction has two effects, known as debits and credits.

• There is at least one debit and at least one credit arising from each transaction.

• There can be more than one of either or both, but the total debits and total credits is always equal.

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Debits and Credits

• Assets have a debit nature.

• Liabilities have a credit nature.

• Owner’s Equity has a credit nature.

• Revenue has a credit nature.

• Expenses have a debit nature.

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The General LedgerRules for Posting

• Increases in assets and expenses are debits.

• Decreases in assets are credit entries.

• Increases in liabilities, owner’s equity and revenue are credit entries.

• Decreases in liabilities and owner’s equity are debit entries.

These rules never vary

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The General LedgerRules for Posting

• Ask yourself Two Questions when posting:1. Is the account an Asset/Expense? (Yes/No)

2. Does this entry increase the balance? (Yes/No)

• The answers…Q1 Q2 The Result

Yes Yes = Debit entry

Yes No = Credit entry

No Yes = Credit entry

No No = Debit entry

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Accounts Payable Control

• This is an account in the General Ledger.

• It represents the total owed to suppliers of trading stock for goods purchased on credit.

• It is a liability.

• In terms of the Two Questions (NO, YES), increases in this account are credit entries.

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Posting the Purchases JournalImportant Points

• This is an end-of-month activity.

• The month’s total is posted to Accounts Payable Control.

• The total column is the amount owed to Accounts Payable (a liability), so this is a credit to Accounts Payable Control account.

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Posting to the General LedgerImportant Points

• Use the end-of-month date.

• ‘Particulars’ references the other account involved in the transaction.

• ‘Folio’ references the journal that the posting came from.

• After each debit or credit entry, you update the balance column.

• Always note Dr or Cr after the balance.

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Posting to the General LedgerExercise 3.1

General Ledger (extract) of Abel Co.Accounts Payable Control 2.1

Date Particulars Folio Debit Credit Balance

31/1 Purchases PJ1 2167.00 2167.00 Cr

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The Accounts Payable LedgerImportant Points

• A separate account for each creditor.

• The total of all the individual debts in this ledger equals the Accounts Payable Control account balance in the General Ledger.

• It is shown to be correct with a Schedule of Accounts Payable.

• Use the actual transaction date for entries.

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Posting Accounts PayableExercise 3.1

Accounts Payable Ledger of Abel Co. Iwasaki, J AP1

Date Particulars Folio Debit Credit Balance 3/1 Purchases (Inv. 2215) PJ1 165.00 165.00 Cr 21 Purchases (Inv. 246) PJ1 660.00 825.00 Cr

Lee, M AP2

Date Particulars Folio Debit Credit Balance 10/1 Purchases (Inv. 183) PJ1 462.00 462.00 Cr

Malouf & Co AP3

Date Particulars Folio Debit Credit Balance 15/1 Purchases (Inv. 985) PJ1 385.00 385.00 Cr 25 Purchases (Inv. 011) PJ1 495.00 880.00 Cr

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Schedule of Accounts PayableImportant Points

• This is a list of:– All non-zero balances in the Accounts Payable

Ledger.– The names of these creditors.– Their account numbers.

• It does NOT reveal:– Items posted to wrong accounts.– Items missing from the Purchases Journal.

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Schedule of Accounts PayableExercise 3.1

Abel Co.

Schedule of Accounts Payable

As at 31 January

Account No. Account Name Balance OwedAP1 Iwasaki, J $ 825.00AP2 Lee, M $ 462.00AP3 Malouf & Co. $ 880.00

Total $ 2167.00

General Ledger of Abel Co.

Accounts Payable Control 2.1

Date Particulars Folio Debit Credit Balance31/1 Purchases PJ1 2167.00 2167.00Cr

These mustbe

equal

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Purchases Returns & AllowancesImportant Points

• Returns to suppliers give rise to adjustment notes.

• Adjustment notes are recorded in the Purchases Returns & Allowances journal.

• Entries are made in date order, showing:– The date of the return.– Adjustment note number– Name of creditor and value of adjustment.

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Purchases Returns JournalExercise 3.4

Purchases Journal of Deft Co PJ1 Date

Invoice No.

Particulars (Account Payable to be Credited)

Folio Purchases GST Paid Total

2/2 315 Y. Jung AP1 320.00 32.00 352.00 12 583 Favier P/L AP2 340.00 34.00 374.00 18 085 Bluett & Co AP3 860.00 86.00 946.00 25 599 Favier P/L AP2 290.00 29.00 319.00 27 101 Bluett & Co AP3 360.00 36.00 396.00 28 Totals: 2170.00 217.00 2387.00 Cr 2.1

Purchases Returns & Allowances Journal of Deft Co PR1 Date

Credit Note No

Particulars (Account Payable to be Debited)

Folio Purchases Returns

GST Paid Adjustments

Total

9/2 125 Y. Jung AP1 160.00 16.00 176.00 20 236 Bluett & Co AP3 60.00 6.00 66.00 28 Totals: 220.00 22.00 242.00

Dr 2.1

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Posting Purchases Returns Important Points

• Returns reduce the amount owed to creditors.

• Creditors have a credit balance.

• To reduce a credit balance you make a debit entry.

• Subtract the debit entry from the previous balance to find the new balance.

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Posting Purchases Returns in terms of the Two Questions

• Accounts Payable Control is a Liability.– Not an asset or expense.

• Purchase Returns reduce the amount of this liability.– It does not increase the amount owed.

• No + No = Debit entry

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Posting Deft Co.’s JournalsExercise 3.4

General Ledger of Deft Co. Accounts Payable Control 2.1

Date Particulars Folio Debit Credit Balance 28/2 Purchases PJ1 2387.00 2387.00 Cr Purchases Returns PR1 242.00 2145.00 Cr

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Deft Co.’s Accounts PayableExercise 3.4

Accounts Payable Ledger of Deft Co.

Jung, Y. AP1

Date Particulars Folio Debit Credit Balance2/2 Purchases (Inv. 315) PJ1 352.00 352.00 Cr9 P. Returns (AN 125) PR1 176.00 176.00 Cr

Favier P/L AP2

Date Particulars Folio Debit Credit Balance12/2 Purchases (Inv. 583) PJ1 374.00 374.00 Cr25 Purchases (Inv. 599) PJ1 319.00 693.00 Cr

Bluett & Co AP3

Date Particulars Folio Debit Credit Balance18/2 Purchases (Inv. 985) PJ1 946.00 946.00 Cr20 P. Returns (AN 236) PR1 66.00 880.00 Cr27 Purchases (Inv. 101) PJ1 396.00 1276.00 Cr

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Schedule of Accounts PayableExercise 3.4

Deft Co.

Schedule of Accounts Payable

As at 28 February

Account No. Account Name Balance OwedAP1 Jung, Y 176.00AP2 Favier P/L 693.00AP3 Bluett & Co. 1276.00

Total $ 2145.00

General Ledger of Deft Co.Accounts Payable Control 2.1

Date Particulars Folio Debit Credit Balance28/2 Purchases PJ1 2387.00 2387.00Cr

Purchases Returns PR1 242.00 2145.00 Cr

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Cash PaymentsImportant Points

• All payments are made through the business cheque account at a bank.

• Evidence of payment is:– The cheque butt.– The bank statement.– Receipt from the payee.

• Each payment is recorded in the Cash Payments Journal.

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Cash Payments JournalImportant Points

• Entries are made in date order.• Each cheque number is recorded.• The name of the payee is recorded only if the

cheque is paying an account payable.• The general ledger account name is recorded if the

cheque is paying an expense.• The total of each cheque is recorded in the bank

column.

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The Cash Payments JournalExercise 3.7

Cash Payments Journal of Abel Co. CP1

Date Chq No.

Particulars (Account to be Debited)

Folio Discount Received

Accounts Payable

Purchases GST Paid General Bank

8/3 01 J. Iwasaki AP1 825.00 825.00 10 02 M. Lee AP2 462.00 462.00 15 03 Malouf & Co. AP3 880.00 880.00 31 Totals: 2167.00 2167.00

Dr2.1

(No discounts apply as purchases were in January and the payments are after the end of February.)

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Posting Payments to Creditors Important Points

• Payments reduce the amount owed to creditors (a liability).– This will be a debit entry to Accounts Payable.

• In terms of the Two Questions:– Accounts Payable Control is not an asset or

expense.– A payment does not increase the debt.– No + No = Debit entry.

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General Ledger (Extract) of Abel Co. Accounts Payable Control 2.1

Date Particulars Folio Debit Credit Balance 1/3 Balance b/f 2167.00 Cr 31 Purchases PJ2 2530.00 4697.00 Cr Purchases Returns PR1 319.00 4378.00 Cr Cash at Bank CP1 2167.00 2211.00 Cr

Posting Payments to Creditors Exercise 3.7

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Abel Co.’s Accounts PayableExercise 3.7

Accounts Payable Ledger of Abel CoIwasaki, J AP1

Date Particulars Folio Debit Credit Balance1/3 Balance b/f 825.00 Cr8/3 Cash at Bank CP1 825.00 00.00 Cr

10/3 Purchases (Inv. 375) PJ2 275.00 275.00 Cr25/3 Purchases (Inv. 380) PJ2 770.00 1045.00 Cr26/3 Purchase Returns (AN15) PR1 154.00 891.00 Cr

Lee, M AP2

Date Particulars Folio Debit Credit Balance1/3 Balance b/f 462.00 Cr

10/3 Cash at Bank CP1 462.00 00.00 Cr12/3 Purchases (Inv. 243) PJ2 440.00 440.00 Cr

Malouf & Co AP3

Date Particulars Folio Debit Credit Balance1/3 Balance b/f 880.00 Cr

15/3 Cash at Bank CP1 880.00 00.00 Cr18/3 Purchases (Inv. 045) PJ2 495.00 495.00 Cr30/3 Purchases (Inv. 071) PJ2 550.00 1045.00 Cr31/3 Purchase Returns (AN41) 165.00 880.00 Cr

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Schedule of Accounts PayableExercise 3.7

Abel Co. – Schedule of Accounts Payable

As at 31 March

Account No. Account Name Balance OwedAP1 J. Iwasaki 891.00AP2 M. Lee 440.00AP3 Malouf & Co. 880.00

Total $ 2211.00

Accounts Payable Control 2.1

Date Particulars Folio Debit Credit Balance1/3 Balance b/f 2167.00 Cr31 Purchases PJ2 2530.00 4697.00 Cr

Purchases Returns PR1 319.00 4378.00 CrCash at Bank CP1 2167.00 2211.00 Cr

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Prompt Payment DiscountsImportant Points

• Discounts may be offered to encourage the prompt payment of accounts.

• A discount reduces the purchase price and therefore also reduces the GST.

• A discount received is recorded in the Cash Payments journal:– 1/11

th GST.

– 10/11ths Discount Received.

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The Cash Payments JournalExercise 3.10

Cash Payments Journal of Deft Co CP1

Date Chq No.

Particulars (Acc. to be Debited)

Folio Discount Received.

Discount GST Adj. Accounts Payable

Purchases GST Paid General Bank

15/3 42 Y. Jung AP1 10.00 1.00 165.00 165.00 17 43 Favier P/L AP2 30.00 3.00 660.00 660.00 18 44 Bluett & Co AP3 60.00 6.00 1210.00 1210.00

100.00 10.00 2035.00 2035.00

Dr 2.1 Dr 2.1

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Posting DiscountsImportant Points

• Debit Accounts Payable Control with the total discount received (including GST).

• In terms of the Two Questions:– Accounts Payable Control is not an asset or expense.

– A discount received does not increase the debt.

– No + No = Debit entry.

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Posting Discounts ReceivedExercise 3.10

Accounts Payable Control 2.1

Date Particulars Folio Debit Credit Balance1/3 Balance b/f 2145.00 Cr31/3 Purchases PJ2 3157.00 5302.00 Cr

Purchases Returns PR2 187.00 5115.00 CrCash at Bank CP1 2035.00 3080.00 CrDiscount Received CP1 110.00 2970.00 Cr

General Ledger (Extract) of Deft Co.

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Deft Co.’s Accounts PayableExercise 3.10

Jung, Y. AP1

Date Particulars Folio Debit Credit Balance1/3 Balance b/f 176.00 Cr7 Purchases (Inv. 375) PJ2 440.00 616.00 Cr9 P. Return (AN 135) PR2 88.00 528.00 Cr

15 Cash at Bank CP1 165.00 363.00 CrDiscount Received 11.00 352.00 Cr

Favier P/L AP2

Date Particulars Folio Debit Credit Balance1/3 Balance b/f 693.00 Cr12 Purchases (Inv. 613) PJ2 561.00 1254.00 Cr17 Cash at Bank CP1 660.00 594.00 Cr

Discount Received 33.00 561.00 Cr25 Purchases (Inv. 629) PJ2 110.00 671.00 Cr

Bluett & Co AP3

Date Particulars Folio Debit Credit Balance1/3 Balance b/f 1276.00 Cr18 Purchases (Inv. 135) PJ2 1650.00 2926.00 Cr

Cash at Bank CP1 1210.00 1716.00 CrDiscount Received 66.00 1650.00 Cr

21 P. Returns (AN 246) PR2 99.00 1551.00 Cr27 Purchases (Inv. 151) PJ2 396.00 1947.00 Cr

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Schedule of Accounts PayableExercise 3.10

Deft Co – Schedule of Accounts Payable

As at 31 March

Account No. Account Name Balance OwedAP1 Jung, Y 352.00AP2 Favier P/L 671.00AP3 Bluett & Co 1947.00

Total $ 2970.00

Accounts Payable Control 2.1

Date Particulars Folio Debit Credit Balance1/3 Balance b/f 2145.00 Cr31/3 Purchases PJ2 3157.00 5302.00 Cr

Purchases Returns PR2 187.00 5115.00 CrCash at Bank CP1 2035.00 3080.00 CrDiscount Received CP1 110.00 2970.00 Cr