Welcome to Bookkeeping Journals and Ledgers Accounts Payable This module is about the records that are required when a business buys things on credit. Sutherland - Bookkeeping: An integrated approach - Accounts Payable

Sutherland - Bookkeeping: An integrated approach - Accounts Payable 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. Sutherland - Bookkeeping: An integrated approach - Accounts Payable

Sutherland - Bookkeeping: An integrated approach - Accounts Payable 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. Sutherland - Bookkeeping: An integrated approach - Accounts Payable

Purchases Important 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 Sutherland - Bookkeeping: An integrated approach - Accounts Payable

The Purchases Journal Important 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. Sutherland - Bookkeeping: An integrated approach - Accounts Payable

The Purchases Journal Exercise 3.1 The debt owed for these purchases is a Liability. Sutherland - Bookkeeping: An integrated approach - Accounts Payable

Double Entry Bookkeeping Important 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. Sutherland - Bookkeeping: An integrated approach - Accounts Payable

Sutherland - Bookkeeping: An integrated approach - Accounts Payable 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. Sutherland - Bookkeeping: An integrated approach - Accounts Payable

The General Ledger Rules 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 Sutherland - Bookkeeping: An integrated approach - Accounts Payable

The General Ledger Rules for Posting Ask yourself Two Questions when posting: Is the account an Asset/Expense? (Yes/No) 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 Sutherland - Bookkeeping: An integrated approach - Accounts Payable

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. Sutherland - Bookkeeping: An integrated approach - Accounts Payable

Posting the Purchases Journal Important 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. Sutherland - Bookkeeping: An integrated approach - Accounts Payable

Posting to the General Ledger Important 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. Sutherland - Bookkeeping: An integrated approach - Accounts Payable

Posting to the General Ledger Exercise 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 Sutherland - Bookkeeping: An integrated approach - Accounts Payable

The Accounts Payable Ledger Important 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. Sutherland - Bookkeeping: An integrated approach - Accounts Payable

Posting Accounts Payable Exercise 3.1 Sutherland - Bookkeeping: An integrated approach - Accounts Payable

Schedule of Accounts Payable Important 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. Sutherland - Bookkeeping: An integrated approach - Accounts Payable

Schedule of Accounts Payable Exercise 3.1 These must be equal Sutherland - Bookkeeping: An integrated approach - Accounts Payable

Purchases Returns & Allowances Important 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. Sutherland - Bookkeeping: An integrated approach - Accounts Payable

Purchases Returns Journal Exercise 3.4 Sutherland - Bookkeeping: An integrated approach - Accounts Payable

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. Sutherland - Bookkeeping: An integrated approach - Accounts Payable

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 Sutherland - Bookkeeping: An integrated approach - Accounts Payable

Posting Deft Co.’s Journals Exercise 3.4 Sutherland - Bookkeeping: An integrated approach - Accounts Payable

Deft Co.’s Accounts Payable Exercise 3.4 Sutherland - Bookkeeping: An integrated approach - Accounts Payable

Schedule of Accounts Payable Exercise 3.4 Sutherland - Bookkeeping: An integrated approach - Accounts Payable

Cash Payments Important 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. Sutherland - Bookkeeping: An integrated approach - Accounts Payable

Cash Payments Journal Important 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. Sutherland - Bookkeeping: An integrated approach - Accounts Payable

The Cash Payments Journal Exercise 3.7 Sutherland - Bookkeeping: An integrated approach - Accounts Payable

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. Sutherland - Bookkeeping: An integrated approach - Accounts Payable

Posting Payments to Creditors Exercise 3.7 Sutherland - Bookkeeping: An integrated approach - Accounts Payable

Abel Co.’s Accounts Payable Exercise 3.7 Sutherland - Bookkeeping: An integrated approach - Accounts Payable

Schedule of Accounts Payable Exercise 3.7 Sutherland - Bookkeeping: An integrated approach - Accounts Payable

Prompt Payment Discounts Important 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: 1/11th GST. 10/11ths Discount Received. Sutherland - Bookkeeping: An integrated approach - Accounts Payable

The Cash Payments Journal Exercise 3.10 Sutherland - Bookkeeping: An integrated approach - Accounts Payable

Posting Discounts Important 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. Sutherland - Bookkeeping: An integrated approach - Accounts Payable

Posting Discounts Received Exercise 3.10 General Ledger (Extract) of Deft Co. Sutherland - Bookkeeping: An integrated approach - Accounts Payable

Deft Co.’s Accounts Payable Exercise 3.10 Sutherland - Bookkeeping: An integrated approach - Accounts Payable

Schedule of Accounts Payable Exercise 3.10 Sutherland - Bookkeeping: An integrated approach - Accounts Payable