Acca f3 Financial Accounting (int) Study Text
Part C The use of double entry and accounting systems
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Part C The use of double entry and accounting systems 5: Ledger accounts and double entry 83 (c)
Payment received from a credit customer
(i) accounts receivable decrease
(ii) cash at bank increases (d)
Purchase of van
(i) own a van
(ii) cash at bank decreases Answer
(c) Payment received from a credit customer
(i)
accounts receivable decrease CREDIT accounts receivable decrease in asset
(ii)
cash at bank increases DEBIT
cash at bank increase in asset (d) Purchase of van (i)
own a van DEBIT
van increase in asset
(ii)
cash at bank decreases CREDIT cash at bank decrease in asset How did you get on? Students coming to the subject for the first time often have difficulty in knowing where to begin. A good starting point is the cash account, ie the nominal ledger account in which receipts and payments of cash are recorded. The rule to remember about the cash account is as follows. (a) A cash
payment is a credit entry in the cash account. Here the asset is decreasing. Cash may be paid out, for example, to pay an expense (such as tax) or to purchase an asset (such as a machine). The matching debit entry is therefore made in the appropriate expense or asset account. (b) A
cash receipt is a debit entry in the cash account. Here the asset is increasing. Cash might be received, for example, by a retailer who makes a cash sale. The credit entry would then be made in the sales account.
is maintained for every asset, liability, income and expense. Every transaction is recorded twice so that every debit is balanced by a credit. 4.3 Example: Double entry for cash transactions In the cash book of a business, the following transactions have been recorded. (a)
A cash sale (ie a receipt) of $250 (b)
Payment of a rent bill totalling $150 (c)
Buying some goods for cash at $100 (d)
Buying some shelves for cash at $200 How would these four transactions be posted to the ledger accounts and to which ledger accounts should they be posted? Don't forget that each transaction will be posted twice, in accordance with the rule of double entry. Solution (a)
The two sides of the transaction are: (i)
Cash is received (debit entry in the cash at bank account). (ii)
Sales increase by $250 (credit entry in the sales account). CASH AT BANK ACCOUNT
$
$ Sales a/c 250 Key term 84 5: Ledger accounts and double entry Part C The use of double entry and accounting systems SALES ACCOUNT $
$ Cash a/c 250 (Note how the entry in the cash at bank account is cross-referenced to the sales account and vice-versa. This enables a person looking at one of the accounts to trace where the other half of the double entry can be found.) (b)
The two sides of the transaction are: (i)
Cash is paid (credit entry in the cash at bank account). (ii)
Rent expense increases by $150 (debit entry in the rent account). CASH AT BANK ACCOUNT $ $
RENT ACCOUNT $
$ Cash at bank a/c 150 (c)
The two sides of the transaction are: (i)
Cash is paid (credit entry in the cash at bank account). (ii)
Purchases increase by $100 (debit entry in the purchases account). CASH AT BANK ACCOUNT
$
$ Purchases a/c 100 PURCHASES ACCOUNT $
$ Cash at bank a/c 100 (d)
The two sides of the transaction are: (i)
Cash is paid (credit entry in the cash at bank account). (ii)
Assets – in this case, shelves – increase by $200 (debit entry in shelves account). CASH AT BANK ACCOUNT
$
$ Shelves a/c 200 SHELVES (ASSET) ACCOUNT $
$ Cash at bank a/c 200 4.4 Credit transactions Some accounts in the nominal ledger represent the total of very many smaller balances. For example, the
trade accounts receivable account represents all the balances owed by individual customers of the business while the trade accounts payable account represents all money owed by the business to its suppliers. FAST FORWARD Part C The use of double entry and accounting systems 5: Ledger accounts and double entry 85 Not all transactions are settled immediately in cash or by cheque. A business can purchase goods or non- current assets on credit terms, so that the suppliers would be trade accounts payable until settlement was made in cash. Equally, the business might grant credit terms to its customers who would then be trade accounts receivable of the business. Clearly no entries can be made in the cash book when a credit transaction occurs, because no cash has been received or paid, so where can the details of the transactions be entered? The solution to this problem is to use trade accounts receivable and trade accounts payable accounts. When a business acquires goods or services on credit, the credit entry is made in an account designated 'trade accounts payable' instead of in the cash at bank account. The debit entry is made in the appropriate expense or asset account, exactly as in the case of cash transactions. Similarly, when a sale is made to a credit customer the entries made are a debit to the total trade accounts receivable account (instead of cash at bank account) and a credit to sales account. 4.5 Example: Credit transactions Recorded in the sales day book and the purchase day book are the following transactions. (a) The business sells goods on credit to a customer Mr A for $2,000. (b) The business buys goods on credit from a supplier B Inc for $100. How and where are these transactions posted in the ledger accounts? Solution
(a) TRADE ACCOUNTS RECEIVABLE $ $ Sales a/c 2,000 SALES ACCOUNT $ $
account 2,000
(b) TRADE ACCOUNTS PAYABLE $
Purchases a/c 100
PURCHASES ACCOUNT $
$ Trade accounts payable a/c 100 4.5.1 When cash is paid to suppliers or by customers What happens when a credit transaction is eventually settled? Suppose that, in the example above, the business paid $100 to B Inc one month after the goods were acquired. The two sides of this new transaction are: (a)
Cash is paid (credit entry in the cash at bank account). (b)
The amount owing to trade accounts payable is reduced (debit entry in the trade accounts payable account). Yüklə 3,78 Mb. Dostları ilə paylaş:
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