1. 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

2. 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

3. 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

4. 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

5. 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

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

7. 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

8. 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

9. 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

10. 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…
Q Q 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

11. 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

12. 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

13. 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

14. Posting to the General Ledger Exercise 3.1
General Ledger (extract) of Abel Co.
Accounts Payable Control
Date
Particulars
Folio
Debit
Credit
Balance
31/1
Purchases
PJ1 Cr
Sutherland - Bookkeeping: An integrated approach - Accounts Payable

15. 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

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

17. 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

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

19. 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

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

21. 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

22. 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

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

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

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

26. 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

27. 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

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

29. 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

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

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

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

33. 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

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

35. 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

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

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

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