Br Accounting & Financial Analysis 1 Lecture 4 Debtors & Creditors Subsidiary Ledgers.

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Presentation transcript:

br Accounting & Financial Analysis 1 Lecture 4 Debtors & Creditors Subsidiary Ledgers

br Debtors Ledger Trade debtors originate from the Sales Journal Every sale made on credit will either create a new debtor or increase the amount owing by an existing debtor Previously, we said that the monthly total of the sales journal is posted to the General Ledger. Trade debtors originate from the Sales Journal Every sale made on credit will either create a new debtor or increase the amount owing by an existing debtor Previously, we said that the monthly total of the sales journal is posted to the General Ledger.

br Monthly total of the sales journal The entry would be: CR Sales a/c (Nominal ledger) $68,700 CR GST payable a/c $6,870 (Proprietary ledger) DR Accounts receivable (Trade Debtors, Debtors control a/c) (Proprietary ledger) $75,570 Being credit sales for the month of …….. Being credit sales for the month of …….. The entry would be: CR Sales a/c (Nominal ledger) $68,700 CR GST payable a/c $6,870 (Proprietary ledger) DR Accounts receivable (Trade Debtors, Debtors control a/c) (Proprietary ledger) $75,570 Being credit sales for the month of …….. Being credit sales for the month of ……..

br Amount posted to the Accounts Receivable will be:  The total of all the Credit Sales made during the month to all of the customers.  The total of the Sales Returns for the month by all of the customers.  The total of Cash Received from Debtor payments.  The total of all the Credit Sales made during the month to all of the customers.  The total of the Sales Returns for the month by all of the customers.  The total of Cash Received from Debtor payments.

br Why use subsidiary ledgers? The general ledger will only show a total figure of how much is owed to the business it will not give details as to WHO owes the money nor HOW MUCH each customer owes. This information is most important to a business as it needs to collect money owing as quickly as possible. Debtors Subsidiary Ledger In order to have this information available there needs to be a Debtors Subsidiary Ledger for amounts owing to the business and Creditors Subsidiary Ledger a Creditors Subsidiary Ledger for amounts owing to the customers. The general ledger will only show a total figure of how much is owed to the business it will not give details as to WHO owes the money nor HOW MUCH each customer owes. This information is most important to a business as it needs to collect money owing as quickly as possible. Debtors Subsidiary Ledger In order to have this information available there needs to be a Debtors Subsidiary Ledger for amounts owing to the business and Creditors Subsidiary Ledger a Creditors Subsidiary Ledger for amounts owing to the customers.

br Controlling Debtors A business needs to monitor debtor payments using some of the following techniques: Get a credit check by using a reputable credit agency Get 3 references on the customer from their current suppliers Clearly indicating the credit terms being offered Enforcing credit terms as agreed Ensure that all invoices and statements are accurate and delivered promptly. Stop service to any delinquent payer Offer discount for early settlement Review debtors regularly to confirm that the credit terms are being observed. A business needs to monitor debtor payments using some of the following techniques: Get a credit check by using a reputable credit agency Get 3 references on the customer from their current suppliers Clearly indicating the credit terms being offered Enforcing credit terms as agreed Ensure that all invoices and statements are accurate and delivered promptly. Stop service to any delinquent payer Offer discount for early settlement Review debtors regularly to confirm that the credit terms are being observed.

br Outstanding accounts Check that the invoice sent to the customer was correct and that the customer received the goods. (delivery note signed by customer) Contact the customer by telephone followed by a letter demanding payment. If payment is still not received contact your debt collecting agency or lawyer to follow up. Check that the invoice sent to the customer was correct and that the customer received the goods. (delivery note signed by customer) Contact the customer by telephone followed by a letter demanding payment. If payment is still not received contact your debt collecting agency or lawyer to follow up.

br DEBTORS SUBSIDIARY LEDGER The debtors subsidiary ledger will have an account opened for each individual debtor Each credit sales invoice (after being entered into the SALES JOURNAL) will also be entered into the appropriate debtors account in the subsidiary ledger as will other journal transactions that effect the Accounts Receivables. The debtors subsidiary ledger will have an account opened for each individual debtor Each credit sales invoice (after being entered into the SALES JOURNAL) will also be entered into the appropriate debtors account in the subsidiary ledger as will other journal transactions that effect the Accounts Receivables.

br DEBTORS SUBSIDIARY LEDGER (2) The journals that have a direct influence on Accounts Receivable (Debtors) are: The Sales journal The Sales returns journal The Cash receipts journal The journals that have a direct influence on Accounts Receivable (Debtors) are: The Sales journal The Sales returns journal The Cash receipts journal

br Example: SALES JOURNAL

br Example: Sales returns journal

br Example: Cash Receipts Journal Credit Debit

br DEBTORS SUBSIDIARY LEDGER

br DEBTORS SCHEDULE as at 28th February 2006 TotalCurrent 30days60days John Smith$583$583 Monica Borg$0 Ben Toby$660$231$429 Total$1,243 Total$1,243$814$429 TotalCurrent 30days60days John Smith$583$583 Monica Borg$0 Ben Toby$660$231$429 Total$1,243 Total$1,243$814$429

br GENERAL LEDGER Accounts receivable (Trade Debtors Control account)

br CREDITORS SUBSIDIARY LEDGER The creditors subsidiary ledger will have an account opened for each individual creditor and each credit purchase invoice after being entered into the PURCHASES JOURNAL will also be entered into the appropriate creditors account in the subsidiary ledger, as will other journal transactions that effect the Accounts Payables. The creditors subsidiary ledger will have an account opened for each individual creditor and each credit purchase invoice after being entered into the PURCHASES JOURNAL will also be entered into the appropriate creditors account in the subsidiary ledger, as will other journal transactions that effect the Accounts Payables.

br The journals that have a direct influence on Accounts Payables are: The Purchase journal The Purchase returns journal The Cash Payments journal The Purchase journal The Purchase returns journal The Cash Payments journal

br Example: Purchases journal

br Example: Purchases returns journal

br Example: Cash Payments Journal DebitCredit

br CREDITORS SUBSIDIARY LEDGER

br CREDITORS SCHEDULE as at 28th February 2006 TotalCurrent30 days60days Supplies Ltd $2,541$1,562$979 Co-Op Ltd $2,464 Easton Ltd $1,215$858$357 Uncle Toby $484 Total$6,704 $5,368$1,336

br GENERAL LEDGER Accounts payable (Trade Creditors Control account)

br Have a go! CLASS EXERCISE 3a Debtors & Creditors – handed out yesterday