CHAPTER 4 - CREDIT TRANSACTIONS

Question 1

What are the books of Prime Entry and what do they feed into?

Answer 1

Sales Ledger (sold on credit)

Purchase Ledger (bought on credit)

Cashbook

Feeding into the Nominal Ledger (AECLI)

Question 2

How do we account for sales and purchases on credit?

Answer 2

Sale

Debit customer on Sales Ledger (they’ve received the goods) and credit Sales account (we’ve given the goods)

Purchases

Of goods for resale:

• Debit Purchases (the account receiving) and credit supplier (creditor) on Purchase Ledger

Of other goods / Services:

• Debit account receiving value (stationary, advertising etc) and credit supplier (creditor) on Nominal Ledger

Question 3

Which ledger do supplier accounts for resellable goods go and which ledger do all other supplier accounts go?

Answer 3

Suppliers of Resellable goods - Purchase Ledger

Suppliers of other goods / services - Nominal Ledger

Question 4

How do we record Purchase Returns (returns outwards)?

Answer 4

Debit the supplier account (they’ve received goods back) and credit the Purchases Returns account (we’ve given the goods back)

NB Purchases Account is always debited and Purchases Returns Account is credited

Question 5

How do we record Sales Returns (returns inwards)?

Answer 5

Debit the Sales Returns account (we’ve received the goods back) and credit the customer account on the Sales Ledger (they’ve given the goods back)

NB the Sales account is always credited and the Sales Returns account is always debited