Trade Payables and Trade Receivables Flashcards
Trade receivables
- general ledger a/c
- total owed by all credit customers
Trade Payables
- general ledger a/c
- total owed to all credit suppliers
Receivables Ledger
- balance owed by each individual credit customer
- outside of GL
- used for credit control
Payables Ledger
- balance owed to each individual credit supplier
- outside of GL
- used for credit control
What is updated when a credit sales transaction is input into computerised accounting system?
- GL trade receivables
- GL- sales, bank, payment discounts, sales returns
- individual receivables ledger a/c
- sales invoice created
Why is there no need for reconciliations to be done between trade receivables and receivables ledger?
- when accounting system is integrated they are all updated from the same input info simultaneously so they can’t be different
What is updated when a purchase invoice/credit note is received from suppliers and input?
- GL Trade Payables
- GL Purchases, bank, discount, returns
- suppliers payables ledger a/c
Contra Entry
- when a business has customer who also suppliers them
- may reach agreement to offset balances on receivable and payable
What is the double entry for a Contra?
Dr Payables
Cr Receivables
Want to reduce both by agreed amount, usually lower of outstanding amounts on ledgers
What are the double entry steps for a sales return for credit note to be issued?
Sale
Dr receivables
Cr Sales
Customer Pays
Dr Bank
Cr Receivables
Customer returns goods and issued credit (reverses original sale)
Dr Sales
Cr Receivables (now owe the customer)
What are the two options when a customers receivables ledger has a credit balance?
- offset against future sales
- customer requests a refund
What is the double entry if a refund is given to a customer after a credit note has been issued?
Dr Receivables (clears the balance)
Cr Bank
What is the process in double entry for when a purchase is returned to a supplier?
Original purchase
Dr purchases
Cr Payables
Pays the supplier
Dr Payables
Cr Bank
Business returns the goods and is issued with credit note
Dr Payables (due to supplier, an asset)
Cr Purchases
What is the double entry if a business receives a refund for a credit note that they were issued?
Dr bank
Cr Payables (now has 0 balance)
Why might an overpayment happen on a customer/supplier account?
- overpays an invoice
- pays an invoice twice
How will an overpayment be dealt with/cleared?
- treated like a credit note
- therefore can either sit on the account or be refunded
Why would a business decide to charge interest to a customer?
- if the customer is late in settling their account
How is interest charged shown in financial statements?
- interest receivable if they are charging it to customers
- interest payable if they are being charged it
- shown on statement of Profit/Loss
What is the journal for recording charging interest to customer?
Dr Receivables
Cr Interest Receivables
What is the journal for recording being charged interest by a supplier?
Dr Interest Payable
Cr Payables
Trade Discounts and how recorded in accounts
- given at time of sale/purchase
- reduce selling price as inducement to purchase
- usually for regular customers/bulk buys
- sales/purchases always recorded net of them
- so never appear in financial statements
Settlement Discounts
- offered but not necessarily taken
- inducement to settle debt early
- a percentage discount if paid within set days
Discounts allowed
- offered by business to their customers
Discounts received
- received by business from their supplier
