1. Process accounts payable and receivable
BSBADM309A
Process accounts payable
and receivable
Prepared by Melanie Lynch Training Consultant

2. Unit Descriptor
This unit covers maintenance of accounts payable and accounts receivable records, processing of payments to creditors, and handling overdue accounts receivable.

3. Introduction to Accounting
Key Concepts in Accounting
Assets and Liabilities
The Accounting Equation
Cash Flow and the Accounting Process
Financial Source Documents
Accounting with Journals
Debtors’ and Creditors’ Ledger Accounts
Bank Reconciliation

4. The Purpose of Accounting
A business wants to know its financial position
A business needs to know if they can meet their debts and how much cash they have
Another important measure of success is whether or not they have made a profit

5. Key Concepts in Accounting
Assets are items of value owned by a business
Liabilities are amounts owed by the business to parties outside the business
Owner’s equity or proprietorship is the amount of the owner’s interest or investment in the business

6. Assets and Liabilities
Cash
Goods or inventories
Furniture
Buildings
Land
Accounts receivable or debtors
Liabilities:
Mortgage
Bank Loan
Insurance
Accounts payable or creditors

7. Owner’s Equity or Proprietorship
Owner’s Equity is the concept of worth.
Owner’s Equity = Assets - Liabilities
Owner’s Equity means that the amount of the owner’s interest, investment or equity in the business is calculated

8. The Accounting Equation
The accounting equation is the relationship between the total assets, liabilities and owner’s equity of a business at a certain date.
This relationship is always an equality. The source of funds given to the business will always equal the funds received by the business.

9. The Accounting Equation
All events are regarded from the viewpoint of the business.
Owner’s Equity = Assets - Liabilities
Liabilities and owner’s equity are recorded on the same side of the accounting equation

10. Cash Flow in Business Inflow of cash Outflow of cash
Owners investing capital
Providing services to clients
Selling inventories to customers
Customers paying outstanding accounts
Other income, eg
interest revenue, rent revenue
Outflow of cash
Owner’s withdrawing cash (drawings)
Purchasing supplies
Purchasing inventories from suppliers
Purchasing assets other than inventories
Paying outstanding accounts
Expenses, eg wages, insurance
Business

11. The Accounting Process
Transactions
Source documents
Journals  Bank Reconciliation
Ledgers
Trial Balance
Financial reports

12. Accounting for Credit and Cash Flow in a Business
Debtors and
Creditors
Ledger
Business
Transactions
Source
documents
Journals
Bank
Reconciliation

13. Source Documents
A source documents is a form which provides the details of a transaction and the evidence that the transaction has occurred
They provide the basis for entries in the accounting records

14. Source Documents

15. Source Documents
Source documents that provide evidence of income include:
Cash Register Rolls
Cash Receipts
Invoices to Debtors
Credit Notes from Creditors
Source documents that provide evidence of expenses include:
Cheque butts
Invoices from Creditors
Credit Notes to Debtors

16. Source Documents
All source documents must be entered into the daily journals before they can be filed away
Source documents are entered into Journals in chronological date order
All source documents should be checked for accuracy before they are entered into the accounts system

17. Journals
A journal is sometimes referred to as a day book. It is the first place of entry for the business’ day-to-day transactions, which are entered in date order
Journals are totalled at the end of the month after Bank Reconciliation has taken place

18. Journals

19. Types of Journals
Cash Receipts Journal records all the receipts of cash
Cash Payment Journal records all payments from the business
General Journal records any transaction that does not fit into any one of the other specialised journals
Purchases Journal records all purchases of inventories on credit
Purchases Returns Journal records all returns made on credit purchases
Sales Journal records all sales of inventories on credit
Sales Returns Journal records all returns made on credit sales

20. Accounting for Cash with Journals
Cash Receipts and Cash Register Rolls are the financial source documents that are posted to the Cash Receipts Journal
Cheque butts are the financial source documents that are posted to the Cash Payments Journal

21. Cash Receipts Journal
The Cash Receipts Journal records all receipts of cash
There is a source documents for every entry (a receipt or cash register roll/summary)
There is no set number of columns in a Cash Receipts Journal. Columns are set up for the most frequent items of receipts for each particular business

22. Cash Receipts Journal
Cash from cash receipts is banked daily. This means that the cash received from various sources must be added together for each day and the total amount banked and this is reflected in the Bank column of the Cash Receipts Journal
The totals of the dissection columns should always equal the total of the Bank column (with the exception of Discount Revenue)

23. Cash Payments Journal
The Cash Payments Journal records all payments from the business
The source documents for the payment of cash is the cheque butt or cheque duplicate
There is no set number of columns in the Cash Payments Journal

24. Cash Payments Journal
If more than one cheque is drawn on one day, the amount of each cheque must be entered in the Bank column
If more than two accounts are paid with one cheque then the total amount of the cheque is entered in the Bank column
The totals of the dissection columns should add up to the total of the Bank column (with the exception of Discount Expense)

25. Accounting for credit with Journals
All goods and services purchased or sold and paid for at a later time (usually on a statement at the end of the month) are recorded in the following Journals:
Purchases Journal (source doc – Invoices from Creditors)
- records all purchases of inventories on credit
Purchases Returns Journal (source doc – Credit Notes from Creditors
- records all returns made on credit purchases
Sales Journal (source doc – Invoices to Debtors)
- records all sales of inventories on credit
Sales Returns Journal (source doc – Credit Notes to Debtors)
- records all returns made on credit sales

26. Purchases Journal records all purchases on credit
the source documents for entries in the Purchases Journal are the invoice received for goods purchased on credit
suppliers who the company owes money to are known as Creditors
creditors are considered liabilities, since we owe them money
Creditors accounts are Credit in nature

27. Purchases Returns Journal
records all returns made on credit purchases
the source documents for entries in the Purchases Returns Journal are the credit notes received for goods purchased and returned to the supplier

28. Sales Journal records all purchases of goods on credit
the source documents for entries in the Sales Journal are the invoices dispatched for goods sold on credit
customers who owe the company money are knows as Debtors
debtors are considered assets, since they owe us money
Debtors accounts are Debit in nature

29. Sales Returns Journal records all returns made on credit sales
the source documents for entries in the Purchases Returns Journal are the credit notes duplicates dispatched for goods sold on credit and returned by the customer

30. Debtors and Creditors Ledger Accounts

31. What is a Ledger Account?
A device is needed where changes to a particular debtors or creditors account can be kept account of. Such a device is called an account
An account is a record where all changes to a particular item are shown
A ledger is a book, set of loose cards, or file of all the accounts

32. Purpose of Debtors’ and Creditor’s Ledger Accounts
The purpose of keeping debtors’ and creditors’ ledgers is so that at any point in time the business can check to whom it owes money (Creditor’s accounts) and who owes money to the business (Debtor’s accounts)
When statements are sent to debtors at the end of the month they are drawn up from the Debtors’ Ledger
When statements are received at the end of the month they can be checked against the Creditors’ Ledger

33. Debtors’ and Creditors’ Ledger Accounts
Ledger accounts keep a record of what happens to a Debtor or Creditor
A Debtor is someone to whom the business has sold goods and services. A Debtor is considered an asset, because they bring income to the business.
A Creditor is someone from whom the business has purchases goods and services. A Creditor is considered a liability, because they are an expense to the business.

34. Accounting Rules
Asset accounts have a debit nature. Therefore increases to asset accounts are recorded on the debit side and decreases to asset accounts are recorded on the credit side
Liability and Owner’s Equity accounts have a credit nature. Therefore increases to liability accounts are recorded on the credit side and decreases to liability accounts are recorded on the debit side

35. Preparation of ledger accounts
There is usually a large number of ledger accounts for a business
The procedure for entering details into the ledger is called posting
Posting is usually done at the end of the month and entries are posted from the daily journals (CRJ, CPJ, SJ, SRJ, PJ, PRJ, GJ)

36. Posting from the Journals
Entries from the following journals are usually posted to the debtors accounts:
Sales Journal
Sales Returns Journal
Cash Receipts Journal
Entries from the following journals are usually posted to the creditors accounts:
Purchases Journal
Purchases Returns Journal
Cash Payments Journal

37. To post to a ledger account
Identify the account and the account number and open an account if one is not already in existence
Show the date of the transaction
Fill in the Particulars column with the name of the other account/s affected
Place the relevant amount in the debit or credit columns according to the rules of accounting
Calculate the running balance and place this in the balance column (indicating a dr or cr balance)

38. Balancing a ledger account
If it is the first entry in the ledger account the balance is the same as the entry (debit or credit)
If there is an existing balance in the ledger account (debit or credit), add a like entry and subtract an opposite entry
Keep a running balance showing whether the account is in debit or credit

39. Debtors’ and Creditors’ Schedules
At the end of the month a Debtors’ Schedule and Creditors’ Schedule is drawn up
The debtors’ schedule list all the Debtors’ names and total amounts that they owe with a grand total
The creditors’ schedule list all the Creditors’ names and total amounts that the business owes with a grand total

40. Bank Reconciliation

41. Why reconcile?
We need to make sure that the money recorded in the Cash Receipts book has made it to the bank
We need to make sure that the money recorded in the Cash Payments book has come out of the bank

42. What books and forms do we need to reconcile?
Bank Reconciliation Statement from the previous month
Cash Receipts Book
Cash Payments Book
Bank Statement
Cash at Bank Ledger Card
To produce a new Bank Reconciliation for the end of month

43. What is the process of Bank Reconciliation?
First, obtain the Bank Reconciliation Statement from the previous month which shows any outstanding deposits and unpresented cheques from the previous month
These amounts should be checked against the new Bank Statement – if they appear tick them off on the Bank Statements and the Bank Reconciliation Statement from the previous month
They then have been ACCOUNTED for

44. Step 2 in the Bank Reconciliation Process
Next obtain the Cash Receipts Journal and look at the Bank column, and the Bank Statement
Tick off all the entries in the Cash Receipts Journal against the CREDIT column on the Bank Statement
For any entries that DO NOT appear on either the Bank Statement or the Cash Receipts Journal, you should circle them to be ACCOUNTED for in the reconciliation process

45. Step 3 in the Bank Reconciliation Process
Next obtain the Cash Payments Journal and look at the Bank column, and the Bank Statement
Tick off all the entries in the Cash Payments Journal against the DEBIT column on the Bank Statement
For any entries that DO NOT appear on either the Bank Statement or the Cash Payments Journal, you should circle them to be ACCOUNTED for in the reconciliation process

46. Some CPJ entries not accounted for on the Bank Statement
Most commonly some entries in the Cash Payments Journal are not accounted for on the bank statement because we have sent out cheques to pay our creditors and/or expenses and the parties have not yet banked those cheques
These are called unpresented cheques and will have to be ACCOUNTED for (Step 6)

47. Some CRJ entries not accounted for on the Bank Statement
Most commonly some entries in the Cash Receipts Journal are not accounted for on the bank statement because we may have deposited cash/cheques near the end of the month and they have not been captured in the current Bank Statement
These are called outstanding deposits and will have to be ACCOUNTED for (Step 6)

48. Some Bank Statement entries not accounted for in the CPJ Journal
Some items may appear on the Bank Statement that may be an expense that will have to be ACCOUNTED for by writing them into the Cash Payments Journal (Step 4) before you total the columns at the end of the month
For example, Bank and government charges and fees

49. Some Bank Statement entries not accounted for in the CRJ Journal
Some items may appear on the Bank Statement that may be an expense that will have to be ACCOUNTED for by writing them into the Cash Receipts Journal (Step 5) before you total the columns at the end of the month
For example, Direct Deposits, Interest earned on the account

50. Step 4 in the Bank Reconciliation Process
Write any expenses from the Bank Statement (eg. Bank or government fees/charges) from the DEBIT column of the Bank Statement into the Cash Payments Journal
These items on the Bank Statement can then be ticked off as they are ACCOUNTED for
Total the columns in the CPJ

51. Step 5 in the Bank Reconciliation Process
Write any expenses from the Bank Statement (eg. Direct deposits, interest earned) from the CREDIT column of the Bank Statement into the Cash Receipts Journal
These items on the Bank Statement can then be ticked off as they are ACCOUNTED for
Total the columns in the CRJ

52. Step 6 in the Bank Reconciliation Process
It is now time to construct the new Bank Reconciliation for the end of the month
This will ACCOUNT for the outstanding deposits that are circled in the Cash Receipts Journal and the unpresented cheques as circled in the Cash Payments Journal
It should be set out in the following manner

53. Structure of Bank Reconciliation Statement
Of Acme Trading Company
As at 31 March 2002
Credit Balance as per Bank Statement 8,335.00
Add Outstanding Deposits 2,345.00
10,680.00
Less Unpresented Cheques No No
Debit Balance as per Bank Ledger Card ,685.00

54. Explanation of Bank Reconciliation Statement
The Credit Balance as per Bank Statement is the final balance as shown on the bank statement for the month
The outstanding deposits are taken from any entries circled in the CRJ
The unpresented cheques are taken from any entries circled in the CPJ
These entries can now be ticked in the CRJ and the CPJ, as they have been ACCOUNTED for

55. Step 7 in the Bank Reconciliation Process
Finally we have to ensure that the Debit balance as per the Bank Ledger Card actually balance with the final amount on the Bank Reconciliation Statement
To do this we obtain the Bank Ledger Card which will usually show a Debit balance

56. Cash at Bank Ledger Account is an Asset account
We take the total amount for the month from the Cash Receipts Journal and transfer it to the Bank Ledger Card, posting the amount to the Debit column and adding it to the balance
We take the total amount for the month from the Cash Payments Journal and transfer it to the Bank Ledger Card, posting the amount to the Credit column and subtracting it from the balance

57. Structure of Bank Reconciliation Statement
Cash at Bank
_____________________________________
Date Particulars Debit Credit Balance
Balance ,335.00
Cash Receipts J. 2, ,485.00
Cash Payments J ,685.00
The Cash at Bank balance on the Ledger Card is now reconciled with the amount on the final Bank Reconciliation Statement

58. Final Reconciliation
You will know that your books are balanced and reconciled if the bank balance on the Bank Ledger Card equals the bank balance on the end of month Bank Reconciliation Statement